NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9784

Internet Message Format | 1993-01-22 | 2.9 KB

Path: sparky!uunet!spool.mu.edu!torn!utcsri!relay.cs.toronto.edu!neuron.ai.toronto.edu!ai.toronto.edu!radford
Newsgroups: sci.econ
From: [e-mail] (Radford Neal)
Subject: Re: Inflation
Message-ID: <[e-mail]>
Organization: Department of Computer Science, University of Toronto
References: <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]>
Date: 22 Jan 93 17:05:39 GMT
Lines: 46

In article <[e-mail]> [e-mail] (William B Dwinnell) writes:

>... the point I am trying to make is that inflation would
>occur even in a free market without government intervention (the perpetual
>bad guy), and even without money... I am claiming that inflation would
>occur without either the government or money, as "natural" inflation
>will raise prices, due to the fact that if you sit on something, you waste
>its useful value....

This is an interesting argument, but I'm not sure it proves what the
poster thinks.

First of all, just as a matter of nomenclature, using the word "inflation"
to refer to "the fact that if you sit on something, you waste its useful
value" is so far from common usage of the term that it can only lead to
confusion.  Everyone else I know uses the word inflation to refer either
to (a) an increase in the money supply, or (b) a general decrease in the
amount of tangible goods or services that a unit of money can buy.  The
two are closely linked, making this ambiguity tolerable.  By either of
these definitions, the concept of "inflation" does not apply to a economy
without money.

However, though the poster refers to a situation "without money", I
don't think he really means it.  I assume that the only reason someone
would "sit on something", wasting its useful value, is if they are
holding on to it in anticipation of being able to exchange it for
something that is more useful to them in the future - i.e. if the
commodity is being used as money.  For example, someone might hold on
to gold for use as money, even if the gold could be doing something
useful, like plugging the holes in their teeth.

Such a situation is indeed undesirable, but is not a major factor now,
nor, that I am aware of, in the past.  One of the reasons gold is a good
monetary commodity is that it really doesn't have all that many
practical uses.  Nowadays, everyone uses paper or electronic money,
which has no virtually no natural value at all.

In an economy truely without money, the concept of inflation is
meaningless.  It is, however, still possible to talk about the
standard of living of the people, and this could certainly decrease.
Describing this as "inflation" is not a good idea, however, since in
an economy with money, it is perfectly possible for the standard of
living to decrease without inflation occurring (using the common
meaning of "inflation").

    Radford Neal