I found this article. In some respect the Austrian view is counter-intuitive, in that its easy to think that an increase in costs of production such as increases in price of energy-commodities-raw materials; cause-macro inflation. But Murray Rothbard in Power and Market challenged this view. Is the argument that, increased costs of production just simply increase the costs for producers, and the general price level is unchanged? Can someone clarify this argument for me?
Basically, what he’s saying is, producer good costs are determined by the price of consumer goods, and thus, a change in the price of the former will result from a change in the latter, not vice versa. To say the same thing in a different way, if one producer increases his demand for the producer good in question, and its price increases, it in no way contributes to an increase in the price of another consumer good derived from that producer good; he is already charging the price most profitable for him, and the fact that his inputs have changed in price has no impact on this.
inflation is a monetary phenomenon, as a changing cost of producing oil, for cheaper or more expensive does notthing to change the quantity of money. it has no inflationary or deflationary effect.
in a fixed quantity of money, more money spent on oil means less money can be spent on other products, this is another way of saying that average price levels dont change, just the distribution changes. in nominal terms as oil gets more expensive and demands more gold dollars, less gold dollars will be capable of buying the other products which are on sale
this is only true instantaneously in the short term. the producer of a differnt good that must purchase a common factor of production at a now higher price, althoguh he cant charge a higher price to maintain his profits in the short term, the effect of eroding his profits by his rising cost of production give incentive to distribute his capital/his production from the production of the good with falling profits and towards producing goods which offer better profitability. As the producer cuts his supply, necessarily the price he can demand will rise. so over longer terms, if two firms X and Y buy common producer good A, and demand for X increases leading them to bid more on A, and increasing y’s costs. at time 1 Y cant demand higher prices, but will reduce production, and over time this will lead to Y’s prices going higher.
Obviously.
But clearly Rothbard was talking in the short run - in the long run, adjustments in demand would lead to adjustments in production, ceteris paribus.