Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (5855)	7/15/2001 1:22:01 AM
From: Don Lloyd	Read Replies (2) \| Respond to of 74559

CB - You don't have a problem with understanding how an increase in the gold supply, e.g., when new mines were found in California, Australia, and South Africa, was inflationary, right?... Not at all. ...Why is it so hard to understand that when real activity increases at a faster rate than the gold supply, that's deflationary? ... Real activity, even to the extent that it can be measured, is part, but only part, of the story. Inflation and deflation are the result of the relative balances of changes in the broadly defined money supply and changes in the demand for money. If, for any and all reasons, the demand for money increases relative to the broadly defined supply for money, we have deflation and a specific quantity of goods or services will be voluntarily exchanged for a lower quantity of money, i.e. a lower price. To the extent that any good or service, including wages, is prevented from being subject to this mechanism, that good or service will begin to be priced out of the market. "MisesMoney: Part II,Ch.13 in paragraph II.13.58 In theoretical investigation there is only one meaning that can rationally be attached to the expression inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange value of money must occur Again, deflation (or restriction, or contraction) signifies a diminution of the quantity of money (in the broader sense) which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange value of money must occur If we so define these concepts, it follows that either inflation or deflation is constantly going on, for a situation in which the objective exchange value of money did not alter could hardly ever exist for very long. The theoretical value of our definition is not in the least reduced by the fact that we are not able to measure the fluctuations in the objective exchange value of money, or even by the fact that we are not able to discern them at all except when they are large. " ...Further, why is it so hard to understand that, during deflation, what matters is the real interest rate, not the nominal interest rate?... I would have thought that it is the real interest rate that matters at all times, inflation, deflation, or neither. ...Your assertion, that what was important was the failure of the government to allow wages to fall, is fallacious because, to be true, it would have to be universally true, and it's not. Neither to the rest of the world, nor to other depressions. It's just a little piece of the puzzle, but far from the most important. I will concede that it is not universally true, and that it is not necessarily the most important factor. However, it certainly has the potential to greatly exacerbate both the intensity and the duration of a recession or a depression. Unless you can suggest an alternative, it seems to me that it was the primary reason that economic recovery required the onset of WWII as real wages were locked at too high a level to support a normal profit-driven recovery. Regards, Don