INFLATION & ETHICS

INFLATION & ETHICS

In order to properly analyze the effect of inflation on international business, one must understand the effect that inflation produces on economies in general. Inflation always has a detrimental effect on whatever economy in which it occurs. From a very basic conception, the notion of inflation is defined as an occurrence that takes place when there is a surplus of money printed. Because there is too much money in circulation within a particular economy, the value of that money decreases. The greater the rate of inflation, the lower the value of money within an economy is. This concept directly relates to international business in a variety of ways. International business is largely facilitated though the valuation of money of different countries. The currency of some countries has greater value than others. For the most part, however, by assessing a rate of comparison between the currencies of two different countries, a certain amount of the currency of the lesser valued country's money can equal that of the higher valued currency. These valuations help to account for international trade and help to explain the fact that inflation produces a strain on the normative values of currencies of different countries, and effectively devalues what is swiftly becoming a global economy/marketplace.

One of the most palpable ramifications of inflation on international business is that it greatly reduces a country's ability to pay debts with its own currency (Barron, 2014)to another country that utilizes a different currency. These ramifications are fairly serious, as an analysis of their implications readily implies. A country can go into debt to other countries, usually due to the rate at which it imports and exports. If there is a significant amount of inflation in the country that is indebted to the other, it becomes much more difficult for it to produce an equal amount of value with its own currency of that of the country to which it is indebted. Thus, inflation can produce a situation in which a country is not able to pay its international debts. Such a situation has occurred before in history several times. One of the most salient examples of such occurrence is the economic condition of Germany following both World Wars. Germany's economy was decidedly unstable after World War II (Barron, 2014), yet it was decimated (along with the rest of the country) subsequent to World War I. Moreover, Germany was largely responsible for paying for the damage done to other countries due to the war -- such as in England and in France, and various regions surrounding Germany and the Allied forces. The amount that Germany was assessed to pay for its part in World War II was well beyond its means.

Instead of getting even closer to insolvency by attempting to pay what was truly a ludicrous sum, the Germans purposefully devalued their currency by causing mass inflation. Doing so not only made prices exorbitantly high in Germany (Goodman, 1981), but effectively prevented it from paying its debts to international business. Although this is just an example, it provides tangible evidence for the noxious effect that inflation can have on international business. International business is adversely affected by inflation because it reduces the ability of a country to utilize its own currency, reinforces debt, and produces a detrimental effect on the currencies of those other countries which can not collect on the debts they are owed.

The example of Germany in particular and of the negative repercussions that inflation has on international business in general severely lessens the credibility of the statement that anything that is legal is ethical. Again, from a simplified perspective, inflation is merely caused by printing a surfeit of money. Doing so is legal -- there are few laws about how much currency a government is allowed to print. In fact, the prudent management of economies sometimes calls for printing both greater and lesser amounts of currency. Yet there is a vast expanse of difference between legality and ethics. Ethics relates to doing things that are morally correct -- legality is more about whether or not one has the legal authority to do something. Just because one can do something does not make it ethically defensible.