clarifying money supply increases --> inflation

[DcifrThs]

the whole bernanke inflation thread episode i think left some unanswered questions (well it did for me).

one point i'd like to clarify is the contention that changes in M2 show up eventually in price changes, i.e. inflation.

i'd like to tease out exactly the contention here and then test it since i believe we can.

so first question:

what is the austrian hypothesis regarding the supply of money changes flowing through to overall price changes in the economy?

thanks,
Barron

PS- obviously this is not a fly off the handle thread so all insults and crazy comments about me or comments about me being crazy should, imo, be left in the other thread.

[tomdemaine]

Things only have value because of their scarcity. If you reduce their scarcity you reduce their price all other things being equal. Money is no different to any other thing it's just wrapped in a bunch of big words and mystical nonsense so people can steal from you.

[mjkidd]

An Austrian would say that increasing the money supply of an economy would cause prices to be higher than they would have been if the money supply stayed the same. My understanding was that this is a pretty standard view of economists, not just Austrians. Do you disagree with it?

[Zygote]

[ QUOTE ]

what is the austrian hypothesis regarding the supply of money changes flowing through to overall price changes in the economy?



[/ QUOTE ]

Assuming no changes in the demand for money, the case of moeny supply changes and the process by which they effect prices is not so simple.

Price changes do not occur homogeneously in space or time. This dissemenation starts with those who receive the cheap loans/cash first and ends with those who have cheapened purchasing power last. How the money is loaned out, spent, different policies, and numerous other factors can effect the way the dissemenation occurs. In general, more efficient and global markets realize price changes faster. Some other generalized things can be deciphered but in general there is no way to predict the specific flow of price changes due to monetary distortions.

Something you may find interest...

Austrian Definitions of the Supply of Money by Rothbard:

http://72.14.253.104/u/Mises?q=cache:0n5...=2&ie=UTF-8