I think a fundamental flaw with the idea that more gold drives prices higher in terms of gold (monetary inflation) is the propensity to save.
If we are 49'rs, and we have two chickens and a ten pounds of carrots, and 3 gold coins, we can set the price of a chicken at one gold coin, and one gold coin per ten pounds of carrots. Now if only we had a bit of rice, and maybe some celery, well we could rustle up a fine bit of chicken soup.
But instead, lets say that we work the ol stream with a pan, and create a new gold coin each. If we both prefer to stash our gold coins pending a trip to the city, where there are fine whisky and dancing girls, then the price of chicken and carrots will likely remain unchanged, despite a nearly doubling of the monetary supply.
It is this choice of what to do with the new money, that determines if we see inflation, or maybe I should say when we see inflation.
This is another case where it isn't the 'stock' (ie money or debt) which matters so much, but what the 'actor' (ie you or me) do with the stock, and the ultimate results of those actions.
Is the appearance of inflation only delayed until that trip to the city? Perhaps by then the supply of whiskey will have grown, with the construction of the new still, and the price of whiskey will remain 1 gold coin per bottle even though there are now 5 gold coins in circulation instead of three.
All in all, the catalog of goods available to purchase grows over time. And like I said before, we can use money to demand things from society, but society sets the price we pay.
If we all demand whisky, then the price of whisky will likely rise. If instead, we all squirel away our gold coins for the company of a dancing girl, the price of whisky may fall. |
