NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9853

Internet Message Format | 1993-01-25 | 2.6 KB

Path: sparky!uunet!spool.mu.edu!caen!uflorida!jfh
From: [e-mail] (James F. Hranicky)
Newsgroups: sci.econ
Subject: Re: Inflation
Message-ID: <[e-mail]>
Date: 26 Jan 93 01:55:43 GMT
References: <[e-mail]> <[e-mail]> <[e-mail]>
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Organization: Univ. of Florida CIS Dept.
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Nntp-Posting-Host: beach.cis.ufl.edu

In article <[e-mail]> [e-mail] (William B Dwinnell) writes:
>
>Okay, Charles, 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. Yes, inflation of prices means "prices
>go up", but that doesn;t tell us much. Why do they go up? It seems
>to be the contention of some here that inflation occurs because 1.
>the government does things to cause it, 2. because we use money, or 3.
>both. 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. If you still do
>not understand, let me know, and I'll run through it again.


In a healthy productive economy, where production has an edge over
consumption, there will be a tendency toward a gradual fall in prices.
This is what happened under the gold standard for both the U.S. and
Britain.

The gradual fall means that  1) production has overtaken the increase in
                supply of money, or

                 2) the costs of pruduction are falling.

Notice that #2 is an important factor in raising the standard of
living for all, given that now more can be produced with the same
amount of labor, bringing a greater supply, and causing prices to
fall subsequently.

A hard currency makes itself a formidable obstacle to the government's
attempt to increase the supply of money. In the nineteenth century,
however, the government issued fiat money during both the war of 1812
and the Civil War, and you can see the prices jump at these points.
However, these currencies were not redeemable in specie, and were outside
of the realm of the gold standard's check on the growth in the money
supply. The National Banking Act centralized reserves in a few banks
in New York, and they were able to inflate the money supply some, but
the gold standard kicked in, causing the panics of the late 19th and
early 20th century.

The next logical steps for the government, in its quest to
inflate the money supply, would be to start a true central bank, and
get rid of the gold standard, which is exactly what happened.

Jim Hranicky ([e-mail])