Inflation, as defined, reduces the economies of scale

The relationship between inflation and prices

Assuming no change in the average cash balances held by a population, over time there must be an inverse relationship between the expansion in the quantity of money in circulation and the diminution of its purchasing power. This is unarguable in logic and to argue otherwise is to subscribe to a version of monetary perpetual motion. By the same token, while the effects on individual prices also have to allow for changes in the factors specific to them, the effects of monetary debasement on the general level of prices should be clear. Now it is time to introduce a second factor; changes in the average cash balances held by a population.

Changes in cash balances are an expression of relative preferences between money and goods. If a population as a whole is satisfied with the stability of money as the medium of exchange, it will be happy to retain balances surplus to its immediate needs. We see this even with inflating currencies, such as the Japanese yen, where irrespective of the level of interest rates monetary expansion merely accumulates as bank deposits. It is unusual for a population to go to the extremes evident in Japan, but equally, a population which realises its currency is declining in purchasing power has every reason to dispose of it in favour of goods, maintaining lower balances in consequence.

When money flow is too volatile, the preference is to hold more goods, buy in advance. That forces a rank reduction in distribution, the economy is less complex and more volume purchases made.  It is a form of shadow banking, taking production inside the house so the currency issuer sees a drop in velocity, equivalent to a loss in market share.  Then a meeting of the elders about the tax dollar.

The paradox is that deposits at the bank become concentrated. the price of beans is actually dropping as we are buying beans by the case, and if you measure by the can you have a scale problem in variation. But, it does not last and some one gets stuck with a ballooning market risk account at the Fed. It is the risk of actually moving forward and hitting the wall, once again. Tight money, large deposits, faster clearing on loans.

Pricing government fails

It is the ghostly mistake of compounding losses over very long periods. The idea is to shorten the clearing cycle on government losses. Do devaluations more often in tinier amounts. The semi-repeatedly makes for a balanced binomial in trade space. The trading pit fair enough for government work.