3 ms·

Demand spikes or supply bottlenecks are the normal drivers of price increases. Market and competition doesn't mean "stable prices for all eternity", but "the ma

Demand spikes or supply bottlenecks are the normal drivers of price increases. Market and competition doesn't mean "stable prices for all eternity", but "the market is the best tool we currently have to dynamically adjust to a changing environment". Following your example, a lack of 2x4 has to drive timber prices up, so the scarce resource is used where is most needed: to the people who is paying the higher prices. If that people is wrong in their predictions, they will suffer the consequences. The market dynamics should 1) allocate the current available 2x4 where they are more needed, 2) accelerate the production of 2x4 that previously were non profitable (e.g. remote forests) and 3) explore possible substitutes previously non profitable. But when you study inflation history, you notice it's always blamed on the business raising prices. With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall. If prices are increasing everywhere, someone is playing foul with money. Sometimes and for short periods it can happen a credit expansion or crunch (imagine people hoarding or spending gold thus varying the amount of money in circulation), but that won't extend for long unless someone is minting gold coins with some cooper in them.

pjc50 4y ago
> With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard. But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.
treis 4y ago
> spike in timber prices is only possible if other prices fall. This isn't true. If there's less stuff being made then prices go up and people get to buy fewer things. Which is roughly what happened during covid.
- otherme123 4y ago
  Covid was a very special an unique event. But even then the following prices plumeted: hotels, travels, vacations, etc. And in general, the CPI for the hardest part of the event (march, april and may of 2020) was negative: demand fell even more than the offer, and prices went down.

pjc50 4y ago

> With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard. But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.

treis 4y ago

> spike in timber prices is only possible if other prices fall. This isn't true. If there's less stuff being made then prices go up and people get to buy fewer things. Which is roughly what happened during covid.

otherme123 4y ago
Covid was a very special an unique event. But even then the following prices plumeted: hotels, travels, vacations, etc. And in general, the CPI for the hardest part of the event (march, april and may of 2020) was negative: demand fell even more than the offer, and prices went down.