NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9887

Internet Message Format | 1993-01-28 | 1.9 KB

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From: [e-mail] (Radford Neal)
Newsgroups: sci.econ
Subject: Re: Inflation
Message-ID: <[e-mail]>
Date: 26 Jan 93 20:35:08 GMT
References: <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]>
Organization: Department of Computer Science, University of Toronto
Lines: 25

In article <[e-mail]> [e-mail] (William B Dwinnell) writes:
>I remain unconvinced that inflation must necessarily be "artificial"-
>whether there were inflation or deflation would seem to depend on
>overall economic productivity, rate of consumption of that production,
>and the size of the money supply. (That is, ceteris perebis.)

Yes, it is possible to conceive of inflation (defined as a rise in the
general level of prices) occurring as a result of a "natural" process.
For example, it could be that people cease to feel as much desire to
hold onto cash, or cash equivalents, as they used to.  They might
start to spend whatever they earn immediately, in search of immediate
gratification, or in some investment scheme, without worrying about
whether they maybe need a bit of a cushion for the contingencies of
tommorrow.  Since whatever money exists has to be owned by *somebody*,
if there is nobody who wants to hold on to money, then prices will
rise, as everybody thinks it better to spend the stuff, regardless of
the price level.

Realistically, however, though this could account for a one-time jump
in prices, the process is going to stop before the money becomes
totally worthless, since real people have at least *some* concern
about security.  The sustained inflation often seen in countries with
fiat currencies cannot be explained by this sort of "natural" phenomenon.

    Radford Neal