Article 1313 of alt.fan.john-turmel:
From: firstname.lastname@example.org (John Turmel)
Xref: freenet-news.carleton.ca can.politics:382712 sci.econ:98768 sci.engr:43499 ncf.ca.lets:687 alt.politics.greens:41414 alt.fan.john-turmel:665 alt.conspiracy:498700
>Article #98649 (98680 is last):
>From: "Chas" <email@example.com>
>Subject: Inflation 101.
>Date: Tue Dec 1 15:43:39 1998
>For those of you who by now have been completely exhausted and
>confused by all these egotistical engineers and their crack-pot
>banking theories, I would like to interject a little basic
>economics into the confused muddle.
JCT: Great. Just what we need. Basic economics from a guy who
admits he's too confused to have followed the debate with everybody
>Q1: First, what is inflation?
>A1: Inflation is a sustained rise in the general level of prices.
JCT: That's the orthodox definition but it fails to take into
account the other possibility: the decrease in product for a given
>Q2: How is inflation measured?
>A2: Because inflation cannot be directly observed, a statistical tool
>called a price index is used to indirectly quantify the over-all
>trend of an arbitrary chosen group of prices.
>Q3: What causes inflation?
>A3: The rise in the general level of prices is caused by excessive
>growth in the circulation medium.
JCT: Now I've been challenging Chas and others to explain why the
growth in circulation medium in Argentina did not cause a rise in
price levels but reduced the rise in measured price levels. After
ducking the question every time I raised it, he still parrots the same
old theory of inflation which cannot account for the Argentinian
>Q4: What is excessive growth of the circulating medium?
>A4: When the 'money' supply' grows at a greater rate than the needs
>of trade. Too much money chasing too few goods.
JCT: Same orthodox canard which cannot explain Argentina.
>Q5: Are there other explanations for inflation?
>A5: Yes, but they attempt to explain changes in the general level of
>prices by changes in relative prices or by speaking of one set of
>prices in terms of another set of prices.
JCT: And one explanation called Shift B inflation which Chas
seems to confused to consider.
>Q6: Is there a name for this form of fallacious reasoning?
>A6: Yes, it is called the "Real Bills" theory of commercial banking.
>Article #98734 (98742 is last):
>From: firstname.lastname@example.org (William F. Hummel)
>Date: Wed Dec 2 14:30:16 1998
>>A1: Inflation is a sustained rise in the general level of prices.
>Hold on. On Oct 20th, Anderson defined inflation as follows:
>"The word inflation means the excess of currency relative to the needs
>of trade." Is there some confusion over definitions creeping in here?
JCT: Evidently, Anderson's wrong and Hummell can't seem to grasp
Shift B inflation either.
>>A3: The rise in the general level of prices is caused by excessive
>>growth in the circulation medium.
>Oops! Let's hope students in Inflation 101 are taught to understand
>the difference between correlation with causation. For one with so
>deep a knowledge of economic theory, it's surprising to see a complex
>phenomenon like inflation being explained in such simple and
JCT: Why would anyone assume that our confused friend has a deep
knowledge of economic theory? Then again, I've always said studying
that orthodox economic theory can cause brain damage that is very
difficult, though evidently not impossible for all, to overcome.
>>Q4: What is excessive growth of the circulating medium?
>>A4: When the 'money' supply' grows at a greater rate than the needs
>>of trade. Too much money chasing too few goods.
>Pithy statements such as inflation is "too much money chasing too few
>goods" and inflation is "always and everywhere a monetary phenomenon"
>are substitutes for serious thought. Unfortunately many adopt them as
>the whole story and go no further.
>A century ago when money was commonly viewed as a commodity -- for
>example, gold or silver coins -- there was some validity to these
>simple ideas. Bank notes were eyed with suspicion even though they
>promised convertibility on demand to some precious metal coinage.
>Money was seen as something hard and real that could vary independent
>of commerce. New gold discoveries on occasion increased the money
>supply dramatically, giving rise to higher prices as the supply of
>goods and services moved on an independent track.
JCT: I can accept this as a valid example of inflation Shift A.
>In the modern world of inconvertible money, most of which is
>created as bank credit, the money supply is no longer independent of
>commerce. Except in extremis when the government prints money to pay
>its bills, the money supply is a dependent variable, not a control
JCT: The government does not print money to pay its bills. If it
did, it wouldn't be in such debt. It borrows money just like every
>Its quantity is a function of demand by business and consumers.
>Monetary policy acts to control the interest rate and therefore
>must leave the money supply to be determined by the market. Prices
>are still affected by the supply of goods and services, as when a
>natural disaster reduces the supply of wheat or bananas. Conversely,
>opening trade to cheap imports can drive down the general price of
>manufactured goods. But neither of these price changes is caused
>by printing too much or to little money.
JCT: And I don't call these kinds of price rises inflation. They
are natural phenomena. I only call the loss of purchasing power due to
interest real inflation.
>>Q5: Are there other explanations for inflation?
>>A5: Yes, but they attempt to explain changes in the general level of
>>prices by changes in relative prices or by speaking of one set of
>>prices in terms of another set of prices.
>The offered explanation is descriptive, not a statement of what
>causes inflation. The forces that _cause_ inflationary trends are
>varied and usually unrelated to growth in the money supply.
>In most cases the money supply follows rather than leads, and
>therefore cannot be the cause of inflation.
JCT: Well, this certainly opens the way for a discussion of
Shift B inflation which is not growth of money supply.
>>Q6: Is there a name for this form of fallacious reasoning?
>>A6: Yes, it is called the "Real Bills" theory of commercial banking.
>In spite of all evidence to the contrary, Anderson apparently still
>believes that the Fed has direct control of bank reserves, rather than
>responding passively to the demand for reserves in executing its
>monetary policy. That is a problem without a solution.
>Article #98740 (98742 is last):
>Date: Wed Dec 2 16:09:54 1998
>It's always true in retrospect that inflation is caused by "too
>much" money - if the money supply had been lowered before the
>inflation, the inflation could have been prevented. The hard part is
>knowing in advance when there is "too much."
JCT: Here's another who can only conceive of one inflationary
shift. I just don't understand why this should be so.
Imagine that you are sitting blindfolded on the fulcrum of a
teeter-totter facing us backwards.
You experience a shift in the teeter-totter
and are told that
there is a force pushing up the left side of the teeter-totter and
you're given a stick to try to push whatever it is away.
You spend all your time trying to knock out
the cause of the
shift but nothing seems to work. The joke that's been played on you is
that the force happens to be on the right side of the teeter-totter
pushing the right side down.
/ \ |
Of course, the shift feels the same whether
the force is pushing
up on the left or pushing down on the right. The same applies to
inflation. It could be caused by an increase in the money chasing the
goods or a decrease in the goods being chased by the same money. But
for some reason, most economists just cannot conceive of the force
causing the inflation shift being on the right. Most continue to
parrot that the force is on the right and brain-washing completely
prevents them from even considering the possibility of the shift being
caused by a force on the right.
They just assume that since inflation could be caused by a force
on the left that it is yet they just cannot bring themselves to even
consider the possibility of a force acting on the goods available for
Yet, only the explanation that the shift it caused by a loss of
goods due to foreclosure can explain why increasing the money supply
in Argentine and thereby reducing the rate of foreclosure of goods can
explain the reduction in inflation there after the introduction of
So I challenge all those who insist on parroting that inflation
has to be an increase in the money supply to explain why inflation did
not go up as feared by that nation's bankers and the IMF but in fact
went down if it is not Shift B inflation that we are experiencing.
True, Shift A inflation can occur like it did in Germany after
World War I but the possibility of such inflation does not detract
from the possibility of inflation Shift B. And the results in
Argentina would seem to indicate that injecting added currency brought
inflation down and only Shift B as the cause can be the explanation.
Now, I'd expect that the confused will simply continue their
insults and parroting that inflation is Shift A while backing down
from the challenge but that would prove my point about their lack of
integrity, wouldn't it?
a comment to John Turmel