🚀 go-pugleaf

In article <2168@blue.cis.pitt.edu> wbdst+@pitt.edu (William B Dwinnell) writes:
>
>You say that inflation is "100% a monetary phenomoenae".
>However, inflation may occur with an economy which has no money.
>How can inflation be purely a "mopn[D"monetary" thing?

There are two ways to cause a rise in prices. One is to shrink supply
in relation to demand (or increase demand in relation to supply.) This
will cause a rise in prices in those areas of the economy where goods
and services have become more dear. This can happen in both types
of economies. You will only experience a rise in prices in all areas
as a result of some sort of disaster.

The other way to cause a rise in prices is to increase the supply
of money. This will cause a rise in prices in *all* areas of the 
economy, even though the goods and services have not suddenly become
dearer. What is happening, essentially, is that with the increased
demand provided by the "free" money, goods and services can now be 
bought faster than they are being produced. Since prices attempt to
balance supply and demand, the prices will begin to rise, and production
will attempt to expand in these areas. When the inflation stops, however,
(i.e., the govt quits printing money), the consumers will revert back
to their old time preferences, and these areas wich have expanded will
no longer be deemed necessary by the consumers. They wil go under,
and this is the beginning of the recession.

Inflation also causes interest rates to drop, which means that capital
is being loaned out too quickly. Eventually, interest rates must go
up again to make up for the artificial demand for loans. In some
cases, a high inflation may be accompanied by high interest rates, as
evidenced by the recessions of the 70's.

Jim Hranicky (jfh@reef.cis.ufl.edu)