Re: Inflation Hypothesis

["William B.Ryan" <william_b_ryan@xxxxxxx>]

Referencing
http://www.geocities.com/CapitolHill/Senate/7018/hummel-1-16.html

1.  William Hummel writes, "In modern fiat money economies, (credit)
money is always borrowed into existence."

Please note that Hummel redefines "fiat" to mean bank created credit
money.

Historically, "fiat" pertained to government printing press money,
created by government fiat and spent--not borrowed and spent--into
circulation.  Such money would represent money introduced
"exogenously" into the nexus of transactions.

Bank created credit money is "endogenous" in that it flows from rather
into transactions.  The various types of credit instruments (or
potential credit instruments) deriving from trade are organized into
bank deposits, which are more generally acceptable to the public than
the specific credit instruments themselves, expanding the scope for
the division of labor.

2.  "The money supply grows when someone trades his IOU to a bank for
a credit to his account.  Thus any increase in the nominal money
supply will always be demanded.  It cannot grow faster than demand..."

The false inference is that a purely endogenous system of credit
cannot suffer inflation.

3.  "...In general, competitive pressures in the marketplace will
bring increased production to meet demand without a price increase.
Only if there were a widespread shortage of goods might there be a
general increase in the price level due to borrowing more money into
play."

These two sentences are contradictory.  The second sentence infers
that there could be some sort of "demand pull" inflation resulting
from endogenous credit.

4.  Attempting to manage (or refraining from managing) a purely
endogenous system of credit must result in either accelerating
inflation, or stagnation, or some combination thereof.  The current
(monetarist) policy is minimal but controlled inflation.  The result
is stability at the cost of unrealized potential.  See
http://csf.colorado.edu/forums/debt/1999/msg00255.html

Bill Ryan
william_b_ryan@xxxxxxxxxxx
http://www.geocities.com/CapitolHill/Senate/7018


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