RE: Re: RE: Mommy what's inflation?

["Devine, James" <jdevine@xxxxxxx>]

as indicated by the ';-)' I put in my message, I was joking. The "too much
money chasing too few goods" cliche, like the "inflation is always and
everywhere a monetary phenomenon," is true by definition and thus empty,
useless as an explanation of anything. It begs the question.

In reality, I see inflation as being a result of irreconciliable economic,
social and political conflicts. -- Jim Devine

-----Original Message-----
From: Romain Kroes
To: pen-l@xxxxxxxxxxxxxxxxxxx
Sent: 1/19/02 2:56 AM
>Subject: [PEN-L:21633] Re: RE: Mommy what's inflation?

> What causes inflation?
>
> that's simple: too much money chasing too few goods.
> ;-)
>

Such is the "quantity theory". But it matches reality only if the
adjustments between all goods and all money are instantaneous and
simultaneous. What is reflected in market-equilibrium models of the kind
of
Walras-Debreu's, and what explains that Walras calls for a mythical and
universal "auctioneer". David Hume, who was the grand-father of that
theory,
saw the price rise "by degrees" ("Of money"). What means that the
adjustment
by prices is not immediate. Now, what is the other adjustment variable,
as
long as the requested price level has not yet be reached? Answer: stocks
variation. As long as demand excesses supply, stocks drop. When they
stop
dropping, that means that supply matches demand, and then there is no
reason
for prices to continue rising. Now, is it possible that stocks keep
dropping
for thirty or fourty years?
In other words, grand-father Hume killed himself quantity theory at
birth.
And such is the reason why quantity theorists needed a newtonian market
place: to have not to take stocks variation in account. The modern
theorists
have well understood that, and in order to escape the trap, they
invented
"rational anticipations". As "inflation" is anticipated, instantaneity
and
simultaneity are actualized in the mind of economic agents. Let us stop
smoking.
Te truth is quantity theory is absolutely wrong. Money quantity is not a
cause but a consequence of increasing price level. All historic cases of
"inflation" or even "hyperinflation" involve a third factor: growth or
debt.
Growth in long-term-inflation trends of Rome's world system, of
16th-century
Europe, of occidental world after second world war. Debt in Weimar
Rebublic
of 1922-1923 and in today's Argentina, Turkey, etc. Growth is simple to
understand, as it exerts a permanent tension on stocks, within an
economic
chain where basic activities are disadvantaged from the point of view of
productivity