Greenspan, and nearly everone else, is blind. In the end, I will be proven right.
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Most people, and most commentators, use "inflation" as a synonym for generally rising prices, especially of consumers' goods. So long as prices on the whole are not rising, or are rising only modestly, it is assumed that there is no inflation, or only very little inflation.
I believe that such a procedure is comparable to saying that so long as someone shows no visible signs of illness, he has no illness, that his illness begins only when its symptoms become unmistakable.
In contrast, my view, and that of the British classical economists and of the economists who have comprised the Austrian school -from Adam Smith to Ludwig von Mises- is that inflation does not come into existence when prices start rising noticeably, any more than heart disease or cancer come into existence when a person finally has a heart attack or experiences the acute symptoms of cancer. On the contrary, these diseases are already well advanced before their obvious symptoms appear. Just so with inflation. Inflation is not the rise in prices. Rather, it is the undue increase in the quantity of money, which operates ultimately to cause a rise in prices.
Thus, in my view, the rates of increase in the money supply we have had in recent years constitute substantial inflation in and of themselves. And this substantial inflation has indeed already caused a substantial rise in prices, namely, the rise in the prices of stocks and, to a lesser extent, the rise in real estate prices. |
