My larger point is this: Even IF the West were unlikely to slide into totalitarianism and its attendant catastrophes, this in no way can be claimed a victory for Keynes and his admirers. The Austrian critique nevertheless remains highly damaging.
Oh. I thought you actually wanted me to predict the future. I can barely beat back the anklebiters on this forum, my prescient abilities are sadly lacking.
Ha ha. [:)] I DO know enough about the Austrian program to NOT venture down this slippery slope.
I like you.
Yes, the Austrian viewpoint is very damaging. Which is why we must carry it to the people. Shine some light, and hope we can reach enough people who are not feelers but rather thinkers.
Indeed my friend.
There are a couple of reasons.
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No one really follows Keynes all the way to its logical conclusions. Everyone knows deep down that creating money is not creating wealth. Keynesianis is just an excuse to meddle with the economy abit so the people can be fooled to not to save.
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In many countries in the west the money trickles down through many levels since government doesn’t usully own businesses and especially banks. The money can get stuck in the pipelines. For example in the last year or so the FED pumped money to the banks but banks didn’t pass out the loans but hoarded the money. In effect, banks stopped the inflation reaching to the public.
In third world countries CBs can literally put money in peoples pockets through government banks and corporations. So effects of the inflation is quicker. No pesky private banks and corp to hold out.
- Inflations effects on prices are always uncertain. The money supply might increase but prices might stay the same for a while, but when and if the price inflation starts it may come more than the actual money supply increase. It is like rolling down a snow ball. At first you dont notice it picking up snow and growing but once it gets rolling no one can control it.
Because there is another side of the equation which is “the demand”. Once the genereal prices start to increase and people notice, their demand to hold cash decreases because they would know the cash would be worth less in time. So they wouldn’t want to keep holding cash and they would want to replace it with real goods as soon as possible. And when this happens demand for these real goods increase more than normal since these goods start to act as a store of value.
Lets say you get paid 1000 dollars for the week which will lose 10% of its value in one month or you think this will happen. You would normally spend 200 for food. But in this case you would rather buy an extra 300 hundred dollars worth of canned goods and keep them rather than the money. So your normal food demand would increase and some of your food purchases would be for storing value rather than immediate consumption.
And would it not also follow that in light of this expected inflation, not only will demand increase for real goods as people look to unload dollars, but suppliers may raise prices to account for future inflation as well? Or would this be a force that would keep the increased demand in check (at least in part)?
There are several factors at work here. Higher prices actually mean that people would require larger cash balances. Otherwise, they simply wouldn’t have enough money to make the same purchases. This is different from inflationary expectations, which was described in that cash balances are spent more quickly. If monetary inflation and price inflation are the same, increasing relative cash balances has no further inflationary effects - the same % of the money supply is being withheld from circulation per duration of time. Yet, expectations of future inflation lead to quicker expenditure of cash. Finally, as monetary inflation artificially lowers the rate of interest, the savings rate will fall relative to its natural level, thereby increasing consumer demand (although this demand would otherwise be spent on capital, investments, etc. which would eventually mix with consumption sectors). Nevertheless, increasing consumer prices most directly impacts inflationary expectations.
And yes, prices can increase either in anticipation of greater future demand or in response to greater past demand. Hyperinflation necessarily makes all prices in the inflated currency anticipatory and thus more volatile. There are also costs to business to maintain current prices. Thus, they abandon the currency, if not completely at least in calculation, quoting prices in more stable stores of value. Any time one acquires currency, they immediately seek to sell it.