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> claiming the money supply is essentially unrelated to inflation I don't think this is the actual claim. The key quote is this (emphasis mine): > Doubling th

> claiming the money supply is essentially unrelated to inflation I don't think this is the actual claim. The key quote is this (emphasis mine): > Doubling the amount of gold in a country will have no effect on the price of cheese if you give all the gold to rich people and they just bury it in their yards, or use it to make gold-plated submarines It's not that they're unrelated, it's that increasing the monetary supply is a necessary but not sufficient criterion for inflation to occur. I don't think the author would likely deny that printing boatloads of money resulted in inflation in Zimbabwe or Venezuela, just that if you increase the monetary supply specifically by giving it to rich people who hoard and it never gets spent on consumer goods, it won't affect the price of consumer goods. That's not how it went down in Venezuela, but is (the author asserts) what kept QE from working.

chillacy 7y ago
In the common model for inflation MV=PQ that would match with low V, or "velocity of money"
jfengel 7y ago
I don't think the author would likely deny that printing boatloads of money resulted in inflation in Zimbabwe or Venezuela They might, actually, since the relationship between cause and effect isn't as simple as that. In both cases, the economy collapsed, causing massive inflation from the supply shock. The governments turned that into hyper-inflation by responding with printing money, but that was effect rather than cause. Even if they hadn't devalued their currency that way, they would still have been in a crisis. The hyperinflation added an accounting crisis on top of that, but that's more about numbers than about the real problems. It's frequently presented as if the monetary policy were the cause of the crisis and they should just stop doing that, but it's simply not true. What they needed was to fix their specific national disasters -- destroying the farming infrastructure in Zimbabwe's case (after centuries of colonialism putting all of the farmland in the hands of an entrenched elite and race-based oppression of everybody else), and the collapse of the oil economy in Venezuela's (as well as mismanagement of their oil wealth leading up to it).
BenoitEssiambre 7y ago
>and it never gets spent on consumer goods It doesn't need to be spent on consumer goods to cause inflation. It can also be spend on economic investment ie. new capital (new factories, new equipment, infrastructure inventory, supplies, training, R&D, real estate, mining operation etc. etc.). The money will quickly flow to employees and then to everything else. Only if the rich keep all the new money in cash form would it not cause inflation but this would usually be a very risky and unstable situation for the money hoarders as some of the money on the sidelines can start moving at any time which would cause inflation to spike and the rest of the stockpile to lose value quickly.
- skybrian 7y ago
  It seems like we already have something similar with high real estate prices and money-losing unicorns? But we don't seem to see unneeded new factories or mining happening. Apparently there needs to be some plausible idea around why the investment will make money, and tech has better stories about how that might happen.
- apendleton 7y ago
  > The money will quickly flow to employees and then to everything else. Sure, I never said it was the rich people that had to do the spending, so we don't disagree there, but if "inflation" as commonly measured (CPI, say) is to occur, the prices of consumer goods have to change, and someone at some point has to buy some, whether it's the rich people or their employees, and if it's the latter it requires that the former sink their money into something that employs people. The author suggests that this happens less reliably than it used to (that they hoard cash, or I dunno, gold? whatever -- something societally unproductive)
- notahacker 7y ago
  If newly minted money is spent on economic investment it generally creates economic growth rather than inflation (in general: obviously there are specific investments individual companies can make which drive up prices and it is possible for a rapidly-growing economy to run into short term supply constraints). Sure, the money will flow to the workers who will have more money to spend than they previously did, but it only does so because they are also making more stuff for the additional cash circulating to be used to buy...

chillacy 7y ago

In the common model for inflation MV=PQ that would match with low V, or "velocity of money"

jfengel 7y ago

I don't think the author would likely deny that printing boatloads of money resulted in inflation in Zimbabwe or Venezuela They might, actually, since the relationship between cause and effect isn't as simple as that. In both cases, the economy collapsed, causing massive inflation from the supply shock. The governments turned that into hyper-inflation by responding with printing money, but that was effect rather than cause. Even if they hadn't devalued their currency that way, they would still have been in a crisis. The hyperinflation added an accounting crisis on top of that, but that's more about numbers than about the real problems. It's frequently presented as if the monetary policy were the cause of the crisis and they should just stop doing that, but it's simply not true. What they needed was to fix their specific national disasters -- destroying the farming infrastructure in Zimbabwe's case (after centuries of colonialism putting all of the farmland in the hands of an entrenched elite and race-based oppression of everybody else), and the collapse of the oil economy in Venezuela's (as well as mismanagement of their oil wealth leading up to it).

BenoitEssiambre 7y ago

>and it never gets spent on consumer goods It doesn't need to be spent on consumer goods to cause inflation. It can also be spend on economic investment ie. new capital (new factories, new equipment, infrastructure inventory, supplies, training, R&D, real estate, mining operation etc. etc.). The money will quickly flow to employees and then to everything else. Only if the rich keep all the new money in cash form would it not cause inflation but this would usually be a very risky and unstable situation for the money hoarders as some of the money on the sidelines can start moving at any time which would cause inflation to spike and the rest of the stockpile to lose value quickly.

skybrian 7y ago
It seems like we already have something similar with high real estate prices and money-losing unicorns? But we don't seem to see unneeded new factories or mining happening. Apparently there needs to be some plausible idea around why the investment will make money, and tech has better stories about how that might happen.
apendleton 7y ago
> The money will quickly flow to employees and then to everything else. Sure, I never said it was the rich people that had to do the spending, so we don't disagree there, but if "inflation" as commonly measured (CPI, say) is to occur, the prices of consumer goods have to change, and someone at some point has to buy some, whether it's the rich people or their employees, and if it's the latter it requires that the former sink their money into something that employs people. The author suggests that this happens less reliably than it used to (that they hoard cash, or I dunno, gold? whatever -- something societally unproductive)
notahacker 7y ago
If newly minted money is spent on economic investment it generally creates economic growth rather than inflation (in general: obviously there are specific investments individual companies can make which drive up prices and it is possible for a rapidly-growing economy to run into short term supply constraints). Sure, the money will flow to the workers who will have more money to spend than they previously did, but it only does so because they are also making more stuff for the additional cash circulating to be used to buy...