Comments and cartoon from Doug Casey's Daily Resource.
Rising Commodity Prices and Inflation
Many people blame inflation on higher prices of gasoline, wheat, copper, or what have you. This is an old, idiotic, and tragic economic fallacy.
It’s idiotic because it confuses the consequences of currency inflation with its cause. And tragic because it blames inflation on those who produce real wealth, as opposed to the government, which is the actual cause.
In today’s world, governments, through the central banks, control the amount of money in existence. If they double the money supply, the general price level would double. Of course not everything rises at the same rate. Since inflation initially makes people feel richer, perhaps the prices of Ferraris would go up a lot — but the prices of old Chevys would drop — who wants old cars when loans are out there for a new one?
If the money supply is stable, and one commodity goes up a lot, the price of others must drop — the general price level, in terms of dollars, stays the same.
Inflation causes people to save less. That means there’s less capital to invest for new production, even while it encourages more consumption now (to beat anticipated higher prices). This is the main reason inflation causes the standard of living to drop — in addition to causing the business cycle....
As food prices rise, along with virtually everything else, the sloganeering and rhetoric are going to reach a shrill pitch. The government will begin to point the finger at anyone and anything other than the real causes, starting no doubt with “speculators,” who will be portrayed in the same light as war profiteers.
The practical implications of this -- other than stirring up the class warfare so fondly anticipated by Marx as he sat in his grubby chair scrawling a screed against the capitalists -- will be to unleash any number of government “solutions” that will sound high minded, but lead to low results. Price controls… interference in the free flow of foreign capital… trade sanctions… changes in margin requirements for commodities accounts… higher capital gains taxes. It’s all coming....
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