But Hughes 'analysis' suggests that falling prices should have fed on each other, deepening and prolonging the depression. The problem of profit margins that he made so much of actually begin to emerge during the boom and thus cannnot be caused by the consequent deflation. Having revealed his ignorance of economic history and business cycle theories, Hughes stated that a little inflation is a good thing. This is an appalling thing for an economist to say. Only someone totally ignorant of the truly destructive nature of inflation would make such an absurd claim.
Inflation misdirects production by distorting the structure of relative prices.
Of course, the usual short-term effect is to expand output and raise the demand for labour hence reducing unemployment. But this can only happen if prices rise relative to the cost of labour. In other words, unemployment is cut by cutting real wages. Of course, if unions anticipate this they will push for even higher wages, so giving the country higher unemployment and more inflation. Moreover, for reasons to detailed to relate in a short article, ever-higher levels of inflation are continually required to achieve the same effect.