Re: Gene Epstein (Barron's) on "Endogenous Money"

["Harry Veeder" <veed0001@xxxxxxxxxxxxxxxx>]

>What Alan Greenspan Might Have Said Is a Lot
>More Revealing Than What He Did Say
>
>
>
>                By Gene Epstein
>
>
>                  Among all the candid statements Fed
>Chairman Alan Greenspan made last
>                  week before the Senate Banking
>Committee, he might have added another
>                  that's long overdue.

<snip>



>                  You might even say that, in this
>crazy world, an expanding money supply
>                  doesn't cause higher prices; it's
>higher prices that cause the money supply to
>                  expand.
>
<sniP>


In a hyperinflationary economy I believe this is
essentially the case. In such an environment sellers
first raise their prices in an attempt to *secure*
value from money which they feel has no certain value.
As the government increases the money supply this
compounds the problem thus escalating inflation.

In a normal, or non-hyperinflationary economy,
everyone (ie. anyone who uses money) is certain
of the value of the money they hold. (eg. "I know what
my money is worth when I go shopping".)

During times of normal inflation,  measures of inflation
like changes in CPI,  measure spending performance rather
than changes in the value of money.  There are no objective
measures for the value of money.

Humour has a grain truth.