Re: Inflation (was: Visions of Sugar Plums)

["James R. Olson, jr." <jhavok@xxxxxxxx>]

At 12:32 PM 1/1/99 -0500, Paul Davidson wrote:
>At 05:56 AM 12/31/1998 -1000, you wrote:
>>At 01:45 PM 12/31/98 PST, William B. Ryan wrote:
>>>Since not every entrepreneurial decision is ratified by consumers in
>>>free markets, a measure of inflation is to be expected within even the
>>>most rationally constructed financial system.
>>
>>And here, that a failed decision produces inflation, because the money
>>borrowed is not reabsorbed by the goods produced, but rather enters the
>>economy as a permanent increase in the money supply, as contrasted with the
>>temporary increase produced by a repaid debt.
>>
>Not true since the borrowing of entrepreneurs from the banking system must
>be repaid -- and unless new entrepreneurial loans are taken out --
>repayment reduces the money supply.

Ryan's point is that bankruptcies (failed entrepreneurial decisions) aren't
repaid, and therefore increase the money supply, unlike a successful
decision, which results in repayment of the debt.

My objection to the model was that a period of high bankruptcy ought to
then be a period of high inflation.

Or conversely, a deflationary period ought to be self-correcting, since the
resulting business failures ought to have an inflationary effect.