I never know what to write about when I start Writing, but decided on this article. It describes Japan under deflation, but considering the state of the rest of the World economies, can be utilized as a substitute for the rest of the World. It is time to make some general observations; which while a poor instrument, can sometimes provide Insight. The first and foremost element I would like to express consists of the fact that almost all Inflation has come not from the domestic markets, but from that ever-desirable God–Exports. I remember a famous description of Revolution in the old movie–The Professionals–where Revolution was defined as a raving Beauty at first, and the disappointment of Men when they find Revolution is a used, and old Whore. Trade is much the same as Revolution, where Participants imagine far greater beauty and honor than they actually find.
Everyone desires Trade, because Business sees an expansion of Profits from selling to more than the domestic market. Where it is initially successful, Labor and Resource Costs increase; where it is unsuccessful, Labor Costs are suppressed but Resource Costs continue to increase. The key element in this discussion states that whether Trade is successful or unsuccessful, it still destabilizes the domestic Profitability of native industry. Domestic industry must keep pace with the Resource and Labor Costs of the Export Trade, and therefore domestic Prices must rise. People find themselves in pursuit of a better life that eludes them because of the increasing Costs; said expenditures not geared to the Production Costs of domestic production, but of Trade production. The simple Transportation Costs of Trade raises the Transport Costs of domestic production around 2-4% at a continually maintained scale.
Trade Production Costs always sinks to the bottom because of those self-same Transportation Costs; and so, every nation easily loses its Trade advantage as Resource capital flows outward in search of higher Return. Loss of Trade advantage quickly bring declines in Production quantities, demanding less Labor and Resource; all making Capital less Profitable, so that further capitalization is less desirable. Production soon finds its way back to domestic production levels, facing stiff competition from Trade, and paying the enhanced Costs of Inflation which occurred in pursuit of Trade production. All deflation scenarios is actually only a devolvement back to the price and Profitability structures of domestic production; it requiring less Labor and Resource with less Capitalization. The is the problem with Trade and resulting deflation; she is truly the old Whore of which We speak. lgl