If money were neutral, banks would not care about the money supply. Also, how does he avoid addressing price stickyness, the unfair distribution of the printed dollars, or the fact that savers and people with no income are robbed without compensation?
If you assume that monetary policy cannot increase GDP in the long run, then if you have MV=PQ and you increase M, then assuming a constant V you will either need to increase P or Q. Since by assumption monetary policy doesn’t affect long-term production, P must increase.
P is not the price of every single item, right? Some things cost a dime, some cost millions of dollars. P is the average price of things. So the equation does not by itself prove that wages must rise, or that any particular item will have its price rise, only that the average must rise. Not sure why you brought it up.
Same flaw exists in the quote mentioned in the OP. He is trying to prove by a chain of reasoning that something must happen, [things going hand in hand] but the proof is flawed.
It’s curious why you’d think that the price level may increase without wage levels increasing as well (in the long run). It’s basic micro that wages must be bid up.
Why must they be bid up?
Of course, basic micro, when taught by a non Austrian, has to be approached with caution. Whenever govts, banks, inflation, taxes, and the like are analyzed, be on your guard. I mean, what’s the whole point of having you attend their govt school if not to make sure you learn the govt world view?
Ghandi describes what he was taught in British schools as a boy. Can you guess what they told him about Indians?
After I read that, all I could think was that even in the case of income inflation, those “sellers” are at the same time the majority of the buyers of those things which experience price inflation.
The best reply to anyone who beleives inflation doesn’t hurt due to “money neutrality” is that the same principle would apply to the “deflation” of a fixed money supply acquiring purchase power against a growing stock of consumer and capital goods.
Any neutrality based solely on the symmetrical situation of the buy and sell sides would have to apply to falling prices as well, because the symmetry of transactions is not broken.
Therefore we would have no need for banks and government sponsered inflation.
But probably they would argue that people behave differently against falling prices, and some will hoard money and so on and so forth, intensifying things.
That might be true, but then the money neutrality is not solely based on the symmetry of transactions, but on a given set of psychological predispositions that are hard to verify but are nonetheless conveniently taylored to suit the inflationist view.