Grace,
>>But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise.<<
But it isn't an inevitable consequence. Just when does that consequence follow money growth? Just when does one throw in the towel on the presumed "inevitable consequence"? How long before Von Mises' theory can be considered to have failed?
You and Mises are both correct. It is not inevitable that prices, ignoring the impossibility of accurate measurement, will rise in response to an increase in the supply of money.
There are four general variables that determine goods prices.
1. The supply of money.
2. The supply of goods.
3. The demand for money.
4. The demand for goods.
While an increase in the supply of money, inflation, by Mises' definition, will always tend to increase the prices of goods, or alternately, reduce the purchasing power of money, that increase can be offset by a combination of an increase in the supply of goods, an increase in the demand for money (actually a demand for the future purchasing power of money), and a reduction in the demand for goods.
Regards, Don |
