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"Furthermore, inflation is not simply an increase in the supply of money within an economy; it is the increase in that portion (if any) not backed by a commensu

"Furthermore, inflation is not simply an increase in the supply of money within an economy; it is the increase in that portion (if any) not backed by a commensurate increase in specie: most common in history, market commodities like gold or silver. " Either the author of that article is misenterpreting, I am misinterpreting or Austrian school of Economics is tad stupid. I'm hoping that the one at fault here is me. Basically even with increase of the amount of gold or silver you'd still get inflation, check what happened with Spain at 1500 or so when they got a huge influx of gold from the new world. You can also imagine what would happen if suddenly we'd get huge influx of new gold. As the amount of stuff in the world does not increase the amount you can buy with that new gold must decrease.

nhaehnle 13y ago
Actually, a huge influx of gold probably would not affect our economy today that much, because the total amount of gold is quite small relative to the size of the world economy, and gold is not used as a currency anyway. It would obviously destroy the price of gold, though. That's really one of the two main problem with inflation scare mongers: they don't usually talk about the scale of things. A gigantic influx of new money would certainly cause inflation. However, when the Austrians come out of their holes, one is usually talking about low single-digit percentages of GDP in spending, which is really not that much. The second main problem of Austrian inflationistas is that they deny the possibility that economic production can increase in response to an increase in spending.
digitalengineer 13y ago
There is a difference between inflation and hyperinflation. Hyperinflation is not too much money or not enough money to spend. Hyperinflation is a loss of confidence in the currency (ie, people immediately exchange the currency for something real). Money’s component as a store of value is what prevents inflationary episodes from happening. Imagine, if everyone believed that whatever cash that they hold would lose 50% of purchasing power by the end of the year, they would more than likely go ahead and spend it now instead of when 50% of the value is lost. That's the nature of hyperinflation. The other component necessary for hyperinflation is a competing currency. In Zimbabwe the locals switched to dollars when their native gov’t currency failed. From the article: Most of the gold generated by the ruthlessly productive, rapidly adapting bots found its way to third party vendors in a black market which undercut the prices in the sanctioned, in-game auction houses.
- Ma8ee 13y ago
  I remember Zimbabwe when it was at its worst. The inflation was 30% - per hour. And the queues to the ATMs were loong.
- justincormack 13y ago
  You do not really need a competing currency as anything can be a store of value eg cigarettes or cars that is not the currency. But dollars are widely available globally and plenty fit in a planeload of $100 bills. I was in Brazil when they had around 40% a month inflation and you could buy dollars on any street corner and the black market rate was broadcast every day on the TV news.
brazzy 13y ago
I think you're misunderstanding the point because it's badly stated. Basically they say that inflation happens when money increases but the things paid for with money do not. For the lattery they use specie as a proxy - you need the exchange rate between money and something to actually measure inflation, but specie is a somewhat confusing choice because it's often considered (and sometimes defined) to be money.
gizmo 13y ago
"Austrian economics is tad stupid" is the more correct choice. Austrian economics does not correspond with reality and is rightfully marginalized and ridiculed by the vast majority of economists. In the 19th century we thought of inflation as the change in ratio of money to goods. Inject more money in the economy without a commensurate increase in the amount of goods and you get inflation. Take money out of an economy and deflation occurs. Now we know this isn't really accurate. Inflation happens not when there is more money in the economy but when more money is competing for the same goods. If money just sits in a bank account (or virtual bank account in the case of Diablo III) it doesn't really affect the economy and no inflation occurs. There is the same economic activity but a few rows in a database somewhere contain larger numbers. This is also why in the real world the fed can triple the size of the money supply without causing inflation. Of course the austrians predict, over and over again, that runaway inflation is going to happen Any Time Now. But it doesn't and it won't. Of course in a completely healthy economy you would expect an increase in the money supply to lead to an increase in economic activity and inflation, because in a healthy economy people spend and invest the money they have. Austrian economics is about digging gold up from the ground, then smelting it into ingots and then burying those ingots again in a vault somewhere. Only through this mystical process can you get Real Money. Otherwise the money is "fiat money". It's so silly.
- w0utert 13y ago
  >> This is also why in the real world the fed can triple the size of the money supply without causing inflation. Of course the austrians predict, over and over again, that runaway inflation is going to happen Any Time Now. But it doesn't and it won't. What makes you so sure no runaway inflation will occur? Just because you haven't seen it yourself yet, it's unimaginable? You're right about two things: inflation happens when more money is competing for the same goods, and increasing the money supply does not by definition cause inflation. The conclusion you are drawing ('the fed can triple the money supply without triggering inflation, and runaway inflation will never happen') doesn't follow from that though. Yes, all the money pumped in the economy is sitting on bank accounts right now, interest rate is near-zero and nobody is investing (throwing easy money at Wall Street for short time profits, jacking up the DJIA doesn't count as 'investing'). That's the sentiment right now. What do you think will happen when the economy picks up some steam, people get more confidence, and investments and consumption goes up? The tricky bit about 'runaway inflation' is the 'runaway' part. You can only control inflation by very careful monetary policy, because economies are like oil tankers: they change direction very slowly, but if they start moving you can't stop them anymore. Runaway inflation doesn't occur when you increase the money supply, because when you are increasing the money supply, it's because the oil tanker has almost stopped, and you want to get it going. The question is what happens if it picks up too much speed further down the line. Maybe you don't believe in dollar hyperinflation, but the observation that 'austrians predict runaway inflation over and over and it never happens' is simply wrong. It didn't happen for dollar, euro or yen, but it happened in Weimar, Zimbabwe, Urugay, Argentina, all within 100 years time.

nhaehnle 13y ago

Actually, a huge influx of gold probably would not affect our economy today that much, because the total amount of gold is quite small relative to the size of the world economy, and gold is not used as a currency anyway. It would obviously destroy the price of gold, though. That's really one of the two main problem with inflation scare mongers: they don't usually talk about the scale of things. A gigantic influx of new money would certainly cause inflation. However, when the Austrians come out of their holes, one is usually talking about low single-digit percentages of GDP in spending, which is really not that much. The second main problem of Austrian inflationistas is that they deny the possibility that economic production can increase in response to an increase in spending.

digitalengineer 13y ago

There is a difference between inflation and hyperinflation. Hyperinflation is not too much money or not enough money to spend. Hyperinflation is a loss of confidence in the currency (ie, people immediately exchange the currency for something real). Money’s component as a store of value is what prevents inflationary episodes from happening. Imagine, if everyone believed that whatever cash that they hold would lose 50% of purchasing power by the end of the year, they would more than likely go ahead and spend it now instead of when 50% of the value is lost. That's the nature of hyperinflation. The other component necessary for hyperinflation is a competing currency. In Zimbabwe the locals switched to dollars when their native gov’t currency failed. From the article: Most of the gold generated by the ruthlessly productive, rapidly adapting bots found its way to third party vendors in a black market which undercut the prices in the sanctioned, in-game auction houses.

Ma8ee 13y ago
I remember Zimbabwe when it was at its worst. The inflation was 30% - per hour. And the queues to the ATMs were loong.
justincormack 13y ago
You do not really need a competing currency as anything can be a store of value eg cigarettes or cars that is not the currency. But dollars are widely available globally and plenty fit in a planeload of $100 bills. I was in Brazil when they had around 40% a month inflation and you could buy dollars on any street corner and the black market rate was broadcast every day on the TV news.

brazzy 13y ago

I think you're misunderstanding the point because it's badly stated. Basically they say that inflation happens when money increases but the things paid for with money do not. For the lattery they use specie as a proxy - you need the exchange rate between money and something to actually measure inflation, but specie is a somewhat confusing choice because it's often considered (and sometimes defined) to be money.

gizmo 13y ago

"Austrian economics is tad stupid" is the more correct choice. Austrian economics does not correspond with reality and is rightfully marginalized and ridiculed by the vast majority of economists. In the 19th century we thought of inflation as the change in ratio of money to goods. Inject more money in the economy without a commensurate increase in the amount of goods and you get inflation. Take money out of an economy and deflation occurs. Now we know this isn't really accurate. Inflation happens not when there is more money in the economy but when more money is competing for the same goods. If money just sits in a bank account (or virtual bank account in the case of Diablo III) it doesn't really affect the economy and no inflation occurs. There is the same economic activity but a few rows in a database somewhere contain larger numbers. This is also why in the real world the fed can triple the size of the money supply without causing inflation. Of course the austrians predict, over and over again, that runaway inflation is going to happen Any Time Now. But it doesn't and it won't. Of course in a completely healthy economy you would expect an increase in the money supply to lead to an increase in economic activity and inflation, because in a healthy economy people spend and invest the money they have. Austrian economics is about digging gold up from the ground, then smelting it into ingots and then burying those ingots again in a vault somewhere. Only through this mystical process can you get Real Money. Otherwise the money is "fiat money". It's so silly.

w0utert 13y ago
>> This is also why in the real world the fed can triple the size of the money supply without causing inflation. Of course the austrians predict, over and over again, that runaway inflation is going to happen Any Time Now. But it doesn't and it won't. What makes you so sure no runaway inflation will occur? Just because you haven't seen it yourself yet, it's unimaginable? You're right about two things: inflation happens when more money is competing for the same goods, and increasing the money supply does not by definition cause inflation. The conclusion you are drawing ('the fed can triple the money supply without triggering inflation, and runaway inflation will never happen') doesn't follow from that though. Yes, all the money pumped in the economy is sitting on bank accounts right now, interest rate is near-zero and nobody is investing (throwing easy money at Wall Street for short time profits, jacking up the DJIA doesn't count as 'investing'). That's the sentiment right now. What do you think will happen when the economy picks up some steam, people get more confidence, and investments and consumption goes up? The tricky bit about 'runaway inflation' is the 'runaway' part. You can only control inflation by very careful monetary policy, because economies are like oil tankers: they change direction very slowly, but if they start moving you can't stop them anymore. Runaway inflation doesn't occur when you increase the money supply, because when you are increasing the money supply, it's because the oil tanker has almost stopped, and you want to get it going. The question is what happens if it picks up too much speed further down the line. Maybe you don't believe in dollar hyperinflation, but the observation that 'austrians predict runaway inflation over and over and it never happens' is simply wrong. It didn't happen for dollar, euro or yen, but it happened in Weimar, Zimbabwe, Urugay, Argentina, all within 100 years time.