Knifonomics (part 9): inflation inflation inflation

Stop snivelling, Brown.

Why are price rises called “inflation”? The Knife thought that it was because of the general synonymity between inflation/increases/things getting bigger, those things being the prices.

Somehow it seems a bit contrived, semantically obtuse.

Well, my eyes were opened by a rash of excellent articles, all of which basically state that “inflation” is the inflating of the money supply aka quantitaive easing aka printing money (see Weimar Germany, Zimbabwe etc), which then leads to too much money chasing goods, and in time, human nature being what it is, those goods go up in price, otherwise their value is lessened. Makes sense.

Try Frank Shostak here, Tom Clougherty here, and GR Steele here. The comments are worth reading too. They might all be Austrian school, but the bracing rigour and cold eyed discipline of the markets kind of stacks up.

Therefore price rises are a consequence of inflation (of the money supply), they are the effect, not the cause. Which is what is happening in the UK, right now.

Which means that viewing the price rises themselves as the problem is a bit like treating the rash in meningitis, rather than the meningococcus which causes it.

I know that Ed Balls won’t want to agree with this, and possibly George Osborne and Mervyn King too. However, it pretty much explains the British economy’s travails when The Knife was growing up.

It also has the advantage of passing the Brown-Balls provocation test. Hard to believe that Broon and Adam Smith were  from the same town.

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