reply on: Krugman: Low Unemployment Causes Inflation, Not Monetary Expansion \ stacker news ~econ

pull down to refresh

26 sats \ 3 replies \ @ablunderfilledlife 6 Mar \ on: Krugman: Low Unemployment Causes Inflation, Not Monetary Expansion econ

Inflation is an act of embezzlement. Historically, inflation originated when a country’s ruler, such as a king, would force his citizens to give him all their gold coins under the pretext that a new gold coin was to replace the old one. In the process, the king would falsify the content of the gold coins by mixing them with some other metal and return diluted gold coins to the citizens.

Murray Rothbard wrote, “More characteristically, the mint melted and recoined all the coins of the realm, giving the subjects back the same number of ‘pounds’ or ‘marks,’ but of a lighter weight. The leftover ounces of gold or silver were pocketed by the King and used to pay his expenses.”

Because of the dilution of the gold coins, the ruler could now mint a greater number of coins and pocket for his own use those extra coins. What was now passing as a pure gold coin was in fact a diluted gold coin. As a result of the increase in the number of coins that masquerade as pure gold coins, prices in terms of coins now go up (more coins are being exchanged for a given amount of goods).

Fascinating history here that I had no idea about! It provides a clear picture of what inflation is and links it to the imagery of dilution that I have always associated with inflation.

I am curious: Krugman and governments often believe an increase in prices is the cause of inflation, rather than the symptom. If the evidence points to monetary expansion as the cause, what evidence they see or claim that allows their short-sidedness to persist?

21 sats \ 2 replies \ @Undisciplined OP 6 Mar

It's more accurate to say that Krugman and many other contemporaries think inflation is rising prices and can have causes other than monetary expansion.

The original meaning of "inflation" referred to an expanding money supply, which causes price increases.

The answer to your question will depend on whether or not you think they're genuine in their stated beliefs. I believe Paul Krugman is just a highly talented partisan activist and he doesn't actually believe what he's saying. His goal is to justify whatever his side is trying to do, which just so happens to involve printing tons of money. When Republicans are in power he makes completely different arguments. As such, he's just using sophisticated sounding economics jargon that doesn't actually make sense, in order to persuade people that his side's policy makes sense.

26 sats \ 1 reply \ @ablunderfilledlife 6 Mar

Ah, so he in particular is an enemy of the truth in service of whatever cause he's attached to. Can the same be said of the academics holding the position that inflation is rising prices?

0 sats \ 0 replies \ @Undisciplined OP 6 Mar

That's more due to ignorance of their own discipline's history. They just think that's what the word means.