5 ms·

Also, the focus on "the money supply" is a red herring. What matter for real world prices is supply and demand of real world goods. When you seriously study hy

Also, the focus on "the money supply" is a red herring. What matter for real world prices is supply and demand of real world goods. When you seriously study hyperinflationary periods, you realize that - unlike the story of this Diablo auction house bug - it's basically never a case of governments going crazy with printing money. There's always an underlying cause that came before the hyperinflation - usually a combination of a collapse of production capacity (in Zimbabwe, caused by drastic and ill thought-out economic reforms) and crushing foreign-curency denominated debt. See this paper, for example: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102 It is true that excessive spending by anyone can lead to inflation (not just by government, since most money is actually "created" by private banks). However, what Austrian-types like the Mises people blind themselves to is the fact that the economy has two possible reactions to an increase in demand: There can be price increases, and there can be increases in production. To end up at their stated position, Austrians have to completely deny the possibility of production increases. It's no wonder they got basically all of their inflation-related predictions wrong for many years. They are unfortunately closer to religious dogma than serious economic analysis.

chii 13y ago
> the economy has two possible reactions to an increase in demand: There can be price increases, and there can be increases in production. armchair economist here, but i woudl say that when the increase in money supply outstrip the increase in production (becase there is a limit to the rate of increase of production, but there is no real limit to the rate of increase of printing more money - just put an extra zero at the end, you don't even need more paper/plastic!).
- nhaehnle 13y ago
  Absolutely. It is a matter of quantity, and it would be nice to understand how much and how fast production can increase. But since Austrians usually outright deny the possibility that production increases at all, the path to a fruitful discussion is usually closed. In practice, even the more ambitious types of policies that are debated do not actually increase spending that much.
  - jacques_chester 13y ago
    Rothbard-school Austrians make the same error as classical Keynsians. They freeze the structure of production, treat it as a homogenous gas, and then modify some exogenous variable. The Austrians modify money supply; the Keynsians modify the aggregate demand. It's the same error of over-simplification. Economies are not smooth curves, they are lumpy and have heterogeneous networks of heterogeneous agents.

chii 13y ago

> the economy has two possible reactions to an increase in demand: There can be price increases, and there can be increases in production. armchair economist here, but i woudl say that when the increase in money supply outstrip the increase in production (becase there is a limit to the rate of increase of production, but there is no real limit to the rate of increase of printing more money - just put an extra zero at the end, you don't even need more paper/plastic!).

nhaehnle 13y ago
Absolutely. It is a matter of quantity, and it would be nice to understand how much and how fast production can increase. But since Austrians usually outright deny the possibility that production increases at all, the path to a fruitful discussion is usually closed. In practice, even the more ambitious types of policies that are debated do not actually increase spending that much.
- jacques_chester 13y ago
  Rothbard-school Austrians make the same error as classical Keynsians. They freeze the structure of production, treat it as a homogenous gas, and then modify some exogenous variable. The Austrians modify money supply; the Keynsians modify the aggregate demand. It's the same error of over-simplification. Economies are not smooth curves, they are lumpy and have heterogeneous networks of heterogeneous agents.