I think you’ll be better off in the long run dumping the Xbox and finding an NES with Super Tecmo Bowl.

In modern times inflation has often been caused by growth in the money supply, but I’ve also seen it caused by other things:

- scarcity of consumer goods
- transport issues related to infrastructure
- excessive debt both public and private such that a large slice of income goes to debt service
- a situation in which most individuals’ income is not related to their productivity (in terms of value created for others) and
- artificially high production costs due to lopsided taxation, labor issues, quality control issues, or similar problems

These conditions caused out of control inflation in France back in 1779, and we all know how that ended. For a more recent example, consider what happened to the ruble in the former Soviet Union even before the decision was made to float the currency. Government stores were so ill supplied that an underground free market economy formed, and prices followed supply and demand.

But the good news in all of this is that hyper-productivity on a large scale is a possible means of collective economic survivial if our government decides to hyperinflate the currency to deal with the deficit and the debt (which is its most likely choice).

Have you checked out any of John T. Reed’s anti-inflation strategies?

Cheers,

Squeaky

Economists talk about Mv=PQ, where M is the money stock, v is the “velocity” of money (how often the average dollar gets spent), P is the price level, and Q is output (the total quantity of goods and services bought and sold in the economy).

M is largely determined by the central bank, Q by the behavior of producers, and v kind of drops out of the behaviors of all the people who hold and spend money. So P (the price level) is treated as the adjustable part of the equation: If you change anything else, in the short term the price level is the thing that changes first.

And that kind of makes sense: You can change prices by just updating the cash register database and changing a few signs.

Inflation is the money becoming less valuable. It may not be an inevitable result of growth in the money supply (if the economy is growing at least as quickly), but it is a very likely result of growth in the money supply.

Now, in the medium term all the variables will react. Higher prices will push consumers to cut back on how much they buy (and change the mix of what they buy–they’ll buy more of the cheap stuff and less of the premium stuff). Producers will produce more. A rapidly growing price level will tend to raise velocity, as people (seeing inflation) will try to unload their dollars early, before they lose more value.

@frugaldad: Thanks for the kind words, and the link!

He’s trying to prove that wealth accumulation is a zero-sum game, so he first changes the customary definition of wealth into a currency-only definition. This removes the permanent value increase argument (as in, once you’ve created something useful and valuable such as a building, it remains for a long time even though the number of dollars someone is willing to pay for it may vary). But it doesn’t save the zero-sum argument, because in order for wealth accumulation to be a zero-sum game the things purchasable with currency have to be constant in quantity and quality. But they’re rather provably not.

Lazy Man’s logic falls apart when he talks about inflation. He says inflation is a necessary consequence of money printing by the government (or, one could argue, artificial increase of a security’s value due to a bubble or a market trend). According to Lazy Man, when there are more dollars to go around, each dollar buys less. That’s only true if the goods and services available to be bought remains constant (which it can’t because of permanent value increase), or if the supply and/or demand for those services does not expand proportionate to the increase in available currency.