We agree that in some small time period (you call it a transient state - yes and it is due to the initial perturbation), there will be no inflation from increased demand of a single good. And, I agree that a higher price from greater demand of that single good causes higher supply (the profit incentive).
However, the OPPOSITE occurs for every other good that money is pulled away from, though in smaller individual magnitudes. (Lower price causes lower supply, a profit disincentive. Their partial derivatives have opposite signs but smaller magnitudes). Then we agree, don't we, that the directions of all the changes due to the initial perturbation are of opposite signs? However, there's where science departs and art takes over, for there is, I assert, no cohesive, convincing database which quantatively correlates the overall effect of this single perturbation upon inflation, meaning the overall price of goods. The magnitudes of the price impact upon each good due to this perturbation are unknown a priori.
And I assert without proof or empirical evidence that the overall effect of the perturbation is nothing - that is there is no net impact on inflation at all! The math I just outlined makes this plausible, as in theory there can be cancellation. It only needs empirical validation.
Availability of money determines overall prices. It is the only variable that counts.
Murray Rothbard recognized the futility of making empirical arguments like Patinkin's. I agree.
I wouldn't call the inflation/deflation of past centuries uniformly creeping. While much of it crept where gold and silver were the coin of the realm, more still inflated from debasement and printing of fiat where that was the rule, like the ancient Chinese. Kubla Khan made paper the law under penalty of death and it still crashed. This, one could hardly call creeping.
No, a gold price increase is not inflationary, because goods normally bought with fiat decrease in value by the same argument as above (fiat drawn off to gold means less for goods). So while part of an economy can expand with gold's enhanced value, that would not be the case for the part of the economy which bases its value on land, commodities and everything else under the sun. For this sector there is deflation. This is an entirely different mechanism from increasing the SUPPLY of gold out of the earth or from plunder, which is inflationary.
You're right about central banks. They now rule the monetary world and have coordinated inflation worldwide. Inflation does not advance any more in spurts here and there - it's a systemic disease.
Bob |
