Irish Liberty Forum

Inflation: Saviour of all Humankind?

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Found this economic propaganda piece lampooned on the LewRockwell blog:

Some thought exercises for the viewer:

1. Can real wages rise when the purchasing power of the dollar decreases and the “cost of living” increases.

2. Although the farmer was able to pay off his mortgage, how will consumers be affected by the rise in wheat prices? What will they do in response to the price increases?

Contrary to what the video might tell us, creating new pieces of paper have no miraculous healing powers for an economy. As Hoppe explains:

However, once a commodity has been established as a universal medium of exchange and the prices of all directly serviceable exchange goods are expressed in terms of units of this money (while the price of the money unit is its power to purchase an array of non-money goods), money no longer exercises any systematic influence on the division of labor, employment, and produced income. Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs.

But this means that any supply of money is optimal and, in that sense, that the supply of money is indifferent or “neutral” to the real processes of the economy. But, unfortunately, changes in the supply of money can have untoward and even devastating effects on the real processes of production.


Written by 20000miles

January 10, 2009 at 4:15 am

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