Comments on: Something Besides Money Growth Causes Inflation?

By: John Zube

John Zube — Sat, 05 Mar 2011 06:58:52 +0000

Howard Baetjer Jr., too, fails to distinguish between monopoly money with legal tender power, whose multiplication can, indeed, drive up prices in its “value standard”, from optional and competitive private or cooperative money issues that are refusable, market-rated and use a sound value standard. The latter cannot drive up prices that are marked in a sound value standard.
Under the latter condition deflations become impossible as well.
As many but no more exchange media can then become freely and competitively issued as are needed for all transactions not yet paid by one or the other clearing or non-cash payment transaction.
Voluntarism and a sound pricing system work well also for the provision of sound exchange media and sound value standards.
Even the supposedly best exchange medium and the best value standard should never be imposed as an exclusive one. Free enterprise and consumer sovereignty, freedom of contract, freedom of exchange, freedom of association, and absence of government meddling are most important in this sphere as well.

By: Zeke

Zeke — Thu, 03 Mar 2011 21:55:09 +0000

Settled matter for most economists? Not as far as I can tell.

It should be though.

I see some comments confusing a rise in the price of some things, due to specific circumstances, with inflation.

Inflation is a general increase in prices across all sectors caused by too much money; i.e. because somebody expanded the money supply too much.

The other things are just supply and demand at work.

Note also, the recent rises in oil and other commodities are due to the Fed’s printing of money; they are the “canary in the coal mine” regards inflation.

By: leopardpm

leopardpm — Thu, 03 Mar 2011 15:48:55 +0000

Max,
Obviously, no price within a market exists in a vacuum. But it is also important to remember that ‘costs’ do not determine price directly… just because there are higher costs to produce corn/oil, this does not necessarily travel down to the price levels in the market for all related items: new demand curves will be reached for each and every item as the supply has changed. Prices are a reflection of a subjective, ‘comparative’ value – compared to all other things possible to purchase, so higher oil costs may also change price levels in wholly unrelated industries/products as well – either up or down!

By: James Stallings

James Stallings — Thu, 11 Nov 2010 06:44:10 +0000

Price inflation is sometimes caused by government subsidies.

Consider that a carpet cleaner who gets $250.00 to clean 5 rooms. Now consider what would happen if the government paid for the first $100.0 of that to those with low enough income to qualify.

1st, wealthy folks would see their taxes increase to pay for the subsidy
2nd carpet cleaners would experience an increase in demand as low income families used their new spending power.
3rd. carpet cleaners would raise their rates to curb demand (to match their volume of work capacity)
4th the wealthy would find that they are paying taxes into a subsidy that they don’t qualify for AND causing the price of the carpet cleaning service to skyrocket. The wealthy get hit at both ends. (and so do the middle class)

This is what has happened to higher education costs in America.
see the chart at which shows what hapened BECAUSE of the Higher Education Act of 1964.
https://spreadsheets.google.com/ccc?key=0AjKuxozTMHcodHBTUGFYZ0JCSkExX19QRlBldHFaVlE&hl=en

By: Max

Max — Thu, 15 Jul 2010 17:41:52 +0000

Mr. Baetjer,

Could you explain and exemplifiy which sectors of the economy exist in a vacuum.

Surely higher prices for oil and corn drive up the prices of goods and services produced using oil and corn, such as transportation and many foods, so we should expect to see higher price levels in those sectors of the economy. But inflation is an increase in the prices overall, not in just some sectors.

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Wed, 17 Mar 2010 14:39:47 +0000

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