Monetary inflation and credit deflation

CLAPTON

jamesd wrote: »

More money around. OK.

Less money around, OK.

So which is it, more money around or less money around?

There's a clue around: there have been problems with coffee, sugar and even onion crops that have caused supply shortages and price rises. There will soon be an increase in VAT that will increase prices. Next year sometime there will probably be an increase in interest rates that will increase RPI inflation.

Those with a focus on precious metals tend to think that all inflation is caused by money supply. It's not. Sometimes you can have reducing money supply and inflation at the same time because of shortages of goods.

if the money supply was fixed, how could a shortgage of SOME products change the average price od ALL products.

jamesd

CLAPTON wrote: »

if the money supply was fixed, how could a shortgage of SOME products change the average price od ALL products.

Take coffee, cats and bacon. Double the price of cats. The average price of all three just increased by 4/3.

RPI inflation is just the total price of a selected range of products, you can have prices of some decreasing or staying the same while it increases for others.

CLAPTON

jamesd wrote: »

Take coffee, cats and bacon. Double the price of cats. The average price of all three just increased by 4/3.

RPI inflation is just the total price of a selected range of products, you can have prices of some decreasing or staying the same while it increases for others.

does that mean you agree that MV= PQ ?

Generali

CLAPTON wrote: »

does that mean you agree that MV= PQ ?

IMO the mistake economists make with MV = PQ (which is just really a tautology) is that V is constant. It isn't.

CLAPTON

Generali wrote: »

IMO the mistake economists make with MV = PQ (which is just really a tautology) is that V is constant. It isn't.

V does indeed vary, presumably upwards and downwards

I doubt myself whether the increase in prices over the last 50 years could be explained solely by increases in V and were independent of the increase in M

System

What do you mean by "credit deflation" ?
Less credit available doesn't mean deflation, the same as a shortage of oil or cat food doesn't mean deflation.

Deflation can only mean a fall in prices. Is the price of credit falling?

Generali

CLAPTON wrote: »

V does indeed vary, presumably upwards and downwards

I doubt myself whether the increase in prices over the last 50 years could be explained solely by increases in V and were independent of the increase in M

Orthodox economic theory assumes V is constant. To use a technical phrase, this is boll0x.

jamesd

I haven't considered MV = PQ so I'm not inclined to offer an opinion beyond doubting almost all pure economic theories to some degree. They are often just useful limited approximations, like the billiard ball model of atoms. I'm sure that V varies, though.

CLAPTON wrote: »

I doubt myself whether the increase in prices over the last 50 years could be explained solely by increases in V and were independent of the increase in M

I think that productivity and labour cost changes are significant factors. Increase productivity and that allows more sales value per worker so each worker could be paid more, which in turn requires more money supply, unless consumption is limited. Improvements in the quality of goods can also increase the money value of things and justify more money. If you believe economic theory there needs to be some inflation to allow for the increasing gross national product of a country. Or deflation if there's no increase but GNP has gone up. Which is why a gold standard and deflation can go together, because gold supply can't increase at as high a rate as global production of other goods can.

When I've looked at it in past discussions UK pay increased by more than UK inflation, so workers in general were ending up substantially ahead of inflation.

CLAPTON

jamesd wrote: »

I haven't considered MV = PQ so I'm not inclined to offer an opinion beyond doubting almost all pure economic theories to some degree. They are often just useful limited approximations, like the billiard ball model of atoms. I'm sure that V varies, though.

I think that productivity and labour cost changes are significant factors. Increase productivity and that allows more sales value per worker so each worker could be paid more, which in turn requires more money supply, unless consumption is limited. Improvements in the quality of goods can also increase the money value of things and justify more money. If you believe economic theory there needs to be some inflation to allow for the increasing gross national product of a country. Or deflation if there's no increase but GNP has gone up. Which is why a gold standard and deflation can go together, because gold supply can't increase at as high a rate as global production of other goods can.

When I've looked at it in past discussions UK pay increased by more than UK inflation, so workers in general were ending up substantially ahead of inflation.

requires more money supply?

what would happen if the supply of money was fixed?

you are confusing the volume and number of goods and services (which make us rich) with their monetry value (which may or may not make us rich depending upon inflation)

jamesd

More goods, same money, hence less money per item, which is a definition of deflation. Adding more money supply is the remedy in that case.

I'm not confusing volume of goods and services with monetary value. The two are linked, in part by the need to provide financial benefits to their producers for increases in production in some monetary way.