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what you're both saying is true, so where you think you are correcting him, you're not. the inflation of the 70's was caused by the increase in the price of a

what you're both saying is true, so where you think you are correcting him, you're not. the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. Oil being a factor in the cost of many other products, there was a knock on effect causing a broad increase in prices across the board, general inflation. There were also 2nd order macroeconomic effects caused by the govt's attempts to deal with the inflation and economic slowdown, but at the root, price inflation was necessary to reflect the realities of factor prices in the economy. reducing the money supply would not have worked to curb that inflation (nor btw did it work in the Great Depression, though it did bring about some deflation. Deflation is why bitcoin is not going to ever work.)

WalterBright 5y ago
> the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Supply & demand. In order for a general price increase, the supply of money must increase.
- dragonwriter 5y ago
  > If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Almost no one buys crude oil directly. But it is a production input for a lot of things, so a shift in its supply curve shifts the supply curve of lots of other goods (including most consumer goods) in the same direction. > In order for a general price increase, the supply of money must increase. For demand pull inflation, supply × velocity × average propensity to consume needs to increase; for supply push inflation, though, nothing is required on the money (which is demand) side, you just need on average decrease in supply of consumer goods and services.
  - WalterBright 5y ago
    Again, if you have $10, and the price of X goes from $5 to $7, now you only have $3 to spend on other things, which reduces the price of those other things. But if someone gives you $20, now you have $7 to spend on X and $13 to bid up the prices on other things. Demand push and supply pull explanations do not account for this, and are inadequate (though still popular) theories.
    - dragonwriter 5y ago
      > Again, if you have $10, and the price of X goes from $5 to $7, now you only have $3 to spend on other things, which reduces the price of those other things. Only in the bizarre world where prices are set by demand alone, and quantity traded is held fixed by the Hand of God. Real supply curves aren't horizontal lines except in very bizarre circumstances. In a real economy, a restriction in supply of a widely used input with no significant change in money supply, velocity, or relative spending vs. saving desire causes the price per unit of consumer goods to go up and the quantity traded to go down. > Demand push and supply pull explanations do not account for this No, they don't “account for” your fantasy that consumer goods behave such that a price change for one good has the results expected only if all other goods had perfectly inelastic supply, because perfectly inelastic supply isn't normal.
      - WalterBright 5y ago
        It's useless trying to deny supply&demand setting prices. The law holds whether it's a personal fantasy of mine or not. If you can explain how increasing the price of oil causes money to appear in my pocket to pay for it, I'm interested. P.S. Nowhere did I say that supply was inelastic or prices are set by demand alone. I said "supply and demand".
        dragonwriter 5y ago
        > It's useless trying to deny supply&demand setting prices And yet you keep positing a model which entirely ignores the effect of supply, by pretending that quantity of consumer goods traded is fixed constant and prices are set only by demand (i.e., assuming no changes in preference, supply of money among buyers), so that with a given supply of money being spent, increase in price of one good must be offset by decreases in other goods rather than decreases in aggregate quantity traded. > The law holds whether it's a personal fantasy of mine or not. Yes, despite their basis is known-false rational choice theory, the so-called laws (which aren't at all laws) of supply and demand are a reasonable approximation of real behavior of markets in aggregate. But they don't predict the behavior you describe unless you assume perfect supply inelasticity of all goods other than the one whose price is assumed to increase. > If you can explain how increasing the price of oil causes money to appear in my pocket to pay for it It doesn't, decreasing the quantiry of oil traded at any price (increasing the price at any quantity traded) also has the same effect on all goods and services oil is used to produce or deliver. As a result, if the unit price of oil increases (and there are no changes in money supply, pre-purchase distribution, consumer preferences, etc.) so does the unit price of most consumer goods and services, with the quantity of goods traded likewise dropping. What does not happen is the same basket of goods being traded, with those impacted by oil getting more expensive but that being offset by other goods getting cheaper, leaving overall nominal price levels the same as before despite shifts in per-sector prices. That would be expected if all non-oil goods had perfectly inelastic supply, but not otherwise. > Nowhere did I say that supply was inelastic No, you just described an effect that is total nonsense unless you assume perfectly inelastic supply.
WalterBright 5y ago
In the 70's, the government tried hard to blame inflation on the oil embargo, greedy capitalists, and the avarice of unions. Gerald Ford's idiotic W.I.N. buttons (Whip Inflation Now) were a particularly pathetic attempt at deflection of the real cause - government running the printing press. Other notable examples of inflation in America: 1. The "not worth a Continental" inflation in the Civil War. 2. The inflation of the Confederate dollar as the Rebel treasury was a printing press 3. Inflation due to the flood of gold coming from the California gold rush There is also the inflation in Spain as they looted the New World of gold and silver. It all didn't help Spain that much, as it just produced inflation. Spain never realized what the real wealth in the New World was.

WalterBright 5y ago

> the inflation of the 70's was caused by the increase in the price of a single good, oil, due to the Arab oil embargo. If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Supply & demand. In order for a general price increase, the supply of money must increase.

dragonwriter 5y ago
> If the price of a single item goes up, and you buy it, you have less money to spend on other items, and so the prices of those other items goes down. Almost no one buys crude oil directly. But it is a production input for a lot of things, so a shift in its supply curve shifts the supply curve of lots of other goods (including most consumer goods) in the same direction. > In order for a general price increase, the supply of money must increase. For demand pull inflation, supply × velocity × average propensity to consume needs to increase; for supply push inflation, though, nothing is required on the money (which is demand) side, you just need on average decrease in supply of consumer goods and services.
- WalterBright 5y ago
  Again, if you have $10, and the price of X goes from $5 to $7, now you only have $3 to spend on other things, which reduces the price of those other things. But if someone gives you $20, now you have $7 to spend on X and $13 to bid up the prices on other things. Demand push and supply pull explanations do not account for this, and are inadequate (though still popular) theories.
  - dragonwriter 5y ago
    > Again, if you have $10, and the price of X goes from $5 to $7, now you only have $3 to spend on other things, which reduces the price of those other things. Only in the bizarre world where prices are set by demand alone, and quantity traded is held fixed by the Hand of God. Real supply curves aren't horizontal lines except in very bizarre circumstances. In a real economy, a restriction in supply of a widely used input with no significant change in money supply, velocity, or relative spending vs. saving desire causes the price per unit of consumer goods to go up and the quantity traded to go down. > Demand push and supply pull explanations do not account for this No, they don't “account for” your fantasy that consumer goods behave such that a price change for one good has the results expected only if all other goods had perfectly inelastic supply, because perfectly inelastic supply isn't normal.
    - WalterBright 5y ago
      It's useless trying to deny supply&demand setting prices. The law holds whether it's a personal fantasy of mine or not. If you can explain how increasing the price of oil causes money to appear in my pocket to pay for it, I'm interested. P.S. Nowhere did I say that supply was inelastic or prices are set by demand alone. I said "supply and demand".
      - dragonwriter 5y ago
        > It's useless trying to deny supply&demand setting prices And yet you keep positing a model which entirely ignores the effect of supply, by pretending that quantity of consumer goods traded is fixed constant and prices are set only by demand (i.e., assuming no changes in preference, supply of money among buyers), so that with a given supply of money being spent, increase in price of one good must be offset by decreases in other goods rather than decreases in aggregate quantity traded. > The law holds whether it's a personal fantasy of mine or not. Yes, despite their basis is known-false rational choice theory, the so-called laws (which aren't at all laws) of supply and demand are a reasonable approximation of real behavior of markets in aggregate. But they don't predict the behavior you describe unless you assume perfect supply inelasticity of all goods other than the one whose price is assumed to increase. > If you can explain how increasing the price of oil causes money to appear in my pocket to pay for it It doesn't, decreasing the quantiry of oil traded at any price (increasing the price at any quantity traded) also has the same effect on all goods and services oil is used to produce or deliver. As a result, if the unit price of oil increases (and there are no changes in money supply, pre-purchase distribution, consumer preferences, etc.) so does the unit price of most consumer goods and services, with the quantity of goods traded likewise dropping. What does not happen is the same basket of goods being traded, with those impacted by oil getting more expensive but that being offset by other goods getting cheaper, leaving overall nominal price levels the same as before despite shifts in per-sector prices. That would be expected if all non-oil goods had perfectly inelastic supply, but not otherwise. > Nowhere did I say that supply was inelastic No, you just described an effect that is total nonsense unless you assume perfectly inelastic supply.

WalterBright 5y ago

In the 70's, the government tried hard to blame inflation on the oil embargo, greedy capitalists, and the avarice of unions. Gerald Ford's idiotic W.I.N. buttons (Whip Inflation Now) were a particularly pathetic attempt at deflection of the real cause - government running the printing press. Other notable examples of inflation in America: 1. The "not worth a Continental" inflation in the Civil War. 2. The inflation of the Confederate dollar as the Rebel treasury was a printing press 3. Inflation due to the flood of gold coming from the California gold rush There is also the inflation in Spain as they looted the New World of gold and silver. It all didn't help Spain that much, as it just produced inflation. Spain never realized what the real wealth in the New World was.