Dan McLaughlin

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To Home Page Latest Newsletter Column Archives Click to get these columns for your local paper	© 2006 Daniel J. McLaughlin Fighting The “Inflation Fighters” Inflation is an insidious disease that destroys your wealth. While it is less dramatic and may take longer, it’s effects are just as real as someone robbing your bank account. Some people fare quite well, those that get the money first, but for the rest of society there is less wealth, less purchasing power and less enjoyment of the fruits of ones actions. It has been an economic phenomenon that has plagued human society to a greater or lesser extent since politicians figured out how to manipulate the supply of money. We often hear that inflation comes from high gasoline prices or high grocery prices or high prices of anything else. But reality is very different. The 1990’s are notable for low fuel prices but the Consumer Price Index rose 30% during that decade. Most economists, if not speaking politics or doubletalk, as the Federal Reserve officials do, will tell you that, everywhere and always, inflation arises from an expanding money supply. Money is the official medium of exchange. But it is also a commodity with a perceived value, the same as any other commodity. Money has a price. Supply and demand affect the price of money in terms of what goods it can be traded for. If the supply of money is kept low, the relative value of money will be high. It will take fewer dollars to trade for other goods. If the supply is increased, the value of money will decrease. That is, the price of the other goods, in terms of dollars needed, will increase The decrease in the value of money, the reduction of purchasing power, is popularly known as inflation. Throughout history, periods of general inflation have always been caused by an increase in the supply of money. The other convoluted explanations of inflation are merely rationalizations for government policy. The Federal Reserve System was established in 1913 with the stated purpose of keeping price levels “stable”. Putting aside the inherent absurdity of stable prices in a free market, how well has the Fed achieved it’s primary purpose for existence? While the various measures of inflation are thought to be significantly understated, purchasing power measures will give some idea. Reality is probably worse.
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Daniel Mclaughlin Copyright © 2006 [Daniel McLaughlin]. All rights reserved. Revised: 03/18/08

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Daniel McLaughlin

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Fighting The “Inflation Fighters”

Inflation is an insidious disease that destroys your wealth. While it is less dramatic and may take longer, it’s effects are just as real as someone robbing your bank account. Some people fare quite well, those that get the money first, but for the rest of society there is less wealth, less purchasing power and less enjoyment of the fruits of ones actions. It has been an economic phenomenon that has plagued human society to a greater or lesser extent since politicians figured out how to manipulate the supply of money.

We often hear that inflation comes from high gasoline prices or high grocery prices or high prices of anything else. But reality is very different. The 1990’s are notable for low fuel prices but the Consumer Price Index rose 30% during that decade. Most economists, if not speaking politics or doubletalk, as the Federal Reserve officials do, will tell you that, everywhere and always, inflation arises from an expanding money supply.

Money is the official medium of exchange. But it is also a commodity with a perceived value, the same as any other commodity. Money has a price. Supply and demand affect the price of money in terms of what goods it can be traded for. If the supply of money is kept low, the relative value of money will be high. It will take fewer dollars to trade for other goods. If the supply is increased, the value of money will decrease. That is, the price of the other goods, in terms of dollars needed, will increase

The decrease in the value of money, the reduction of purchasing power, is popularly known as inflation.
Throughout history, periods of general inflation have always been caused by an increase in the supply of money. The other convoluted explanations of inflation are merely rationalizations for government policy.

The Federal Reserve System was established in 1913 with the stated purpose of keeping price levels “stable”. Putting aside the inherent absurdity of stable prices in a free market, how well has the Fed achieved it’s primary purpose for existence? While the various measures of inflation are thought to be significantly understated, purchasing power measures will give some idea. Reality is probably worse.

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