[quote]vroom wrote:
orion wrote:
Your scenario is either cost push or demand pull inflation and wikipedia even has the Austrian response to this ideas-
No inflated money supply, no inflation.
End of story.
Oooh, a circular reference… that must make it right! ;)[/quote]
In fact it would not be a circular reference if you were right about inflation.
Since you aren´t it actually is one, but that does not help your initial argument that inflation can occur without an inflated money supply.
[quote]orion wrote:
Since you aren´t it actually is one, but that does not help your initial argument that inflation can occur without an inflated money supply.
[/quote]
Let’s get back to the concept of an expanding population…
[quote]vroom wrote:
I wonder… what would increasing world population do to total demand?[/quote]
Demand for what? ‘Total demand’ doesn’t mean anything. You cannot just assume the total demand for all goods and services will increase just because the population does.
The demand for farm labor was much greater when populations were smaller. Today we can feed the world with 1/50 of that – i.e., there is an increase in demand for food but a decrease in demand for farm labor to produce it.
[quote]vroom wrote:
It all seems “directed” towards the notion that we need gold as the basis for money. This smacks of a desired outcome searching for a good reason.
[/quote]
There is no agreement for what the correct money standard should be – either gold, some other commodity, or whatever. There is only an explanation of the properties of money that make it desirable as an exchange mechanism – which helps explain why gold up until recent history was de facto money.
The only thing most Austrians agree on is that money must be based on some real commodity. But yes, many of them do agree that gold is good.
[quote]vroom wrote:
orion wrote:
Since you aren´t it actually is one, but that does not help your initial argument that inflation can occur without an inflated money supply.
Let’s get back to the concept of an expanding population…
[/quote]
Which has nothing to do with inflation.
If you are referring to the industrialization of both China and India this should drive demand up, but not only for commodities but also for consumer goods, machines and computers from the west.
What we are selling is brain power and the actual amount of raw materials that goes in our most sophisticated products at least can be very small.
We might even benefit from this.
[quote]LIFTICVSMAXIMVS wrote:
Demand for what? ‘Total demand’ doesn’t mean anything. You cannot just assume the total demand for all goods and services will increase just because the population does.[/quote]
If you live on an island that can only produce so much food and then increase the population, the demand for food will rise as more people compete for it.
In general, the demand for all the goods on the island will increase as more people have needs for food, clothing, shelter and so on.
So, either price is a factor of supply and demand or it isn’t. In general, I think it is easy to see that demand for goods and services will increase as the population increases.
As for which goods will be in demand, that can change over time as capital and technology develop. However, you’ll find that if you don’t want to talk about the island example things will get pretty complex pretty fast.
[quote]orion wrote:
Which has nothing to do with inflation.
If you are referring to the industrialization of both China and India this should drive demand up, but not only for commodities but also for consumer goods, machines and computers from the west.
What we are selling is brain power and the actual amount of raw materials that goes in our most sophisticated products at least can be very small.
We might even benefit from this.
[/quote]
Let’s back up a step.
Are you suggesting that increased oil prices, due to additional demand from India and China, will not have an impact on industries that use oil?
Farmers will not have increased costs? Trucking industries will not face increased costs? Further, you suggest that those increased costs will not be passed along to the consumer?
[quote]vroom wrote:
orion wrote:
Which has nothing to do with inflation.
If you are referring to the industrialization of both China and India this should drive demand up, but not only for commodities but also for consumer goods, machines and computers from the west.
What we are selling is brain power and the actual amount of raw materials that goes in our most sophisticated products at least can be very small.
We might even benefit from this.
Let’s back up a step.
Are you suggesting that increased oil prices, due to additional demand from India and China, will not have an impact on industries that use oil?
Farmers will not have increased costs? Trucking industries will not face increased costs? Further, you suggest that those increased costs will not be passed along to the consumer?
[/quote]
First I do not share the assumption that the oil price is where it is due to demand from India and China.
However, whatever the reason may be for the oil price, some prices will rise, yes.
[quote]orion wrote:
However, whatever the reason may be for the oil price, some prices will rise, yes.
[/quote]
So, what do you call it when prices rise for a wide variety of goods and services (many things require transport) – without it being caused due to an increase in money supply?
I publically retract my last post. LIFTICVSMAXIMVS, your stuff is good.
Are you trying to argue that population somehow affects prices? This is incorrect.
[quote]vroom wrote:
If you live on an island that can only produce so much food and then increase the population, the demand for food will rise as more people compete for it.
In general, the demand for all the goods on the island will increase as more people have needs for food, clothing, shelter and so on.
So, either price is a factor of supply and demand or it isn’t. In general, I think it is easy to see that demand for goods and services will increase as the population increases.
[/quote]
Price is affected by supply and demand but our individual value scales shape supply and demand. It is in showing our preference by making choices in the market that supply and demand are affected. They are two sides of the same coin. Total demand does not mean anything.
The ability to produce more than is needed is the inevitable result of the division of labor. If this were not true then you would need to produce your own shoes, shirts, food, shelter, computers, cell phones, etc.
An increase in population might increase demand for one good or other but may also increases its supply as well. One cannot be one-sided in such analysis.
[quote]
However, you’ll find that if you don’t want to talk about the island example things will get pretty complex pretty fast.[/quote]
The method is only valuable if you start with the correct premises. You have not.
[quote]vroom wrote:
Farmers will not have increased costs? Trucking industries will not face increased costs? Further, you suggest that those increased costs will not be passed along to the consumer?
[/quote]
Yes, producers try to pass along costs to consumers but it isn’t as simple as that. Cost is only of historical significance. Price is what is actually paid by consumers – and it can change from one second to the next.
As a general rule, a customer does not care that it cost $X to produce some good if he is only willing to pay $Y. If a producer could charge $1,000,000,000 for something that cost $1 to produce, he would. If you could pay $1 for something that cost $1,000,000,000 to produce, you would. What is actually agreed upon is its price.
[quote]vroom wrote:
orion wrote:
However, whatever the reason may be for the oil price, some prices will rise, yes.
So, what do you call it when prices rise for a wide variety of goods and services (many things require transport) – without it being caused due to an increase in money supply?
[/quote]
rising prices.
[quote]orion wrote:
First I do not share the assumption that the oil price is where it is due to demand from India and China.
However, whatever the reason may be for the oil price, some prices will rise, yes.
[/quote]
Not all of it - but surely a lot of the price is being fuelled by demand. Albeit, the demand is artificially propped up by government subsidies for fuel prices - most notably in China and India.
And speculation is playing a role as well: http://www.econbrowser.com/archives/2008/05/oil_bubble.html
To the extent it’s speculation, when/if those governments cease their subsidies and then there is a demand contraction, watch for a serious pullback.
We knew we’d be getting some inflation with the rate cuts that Bernanke instigated to stave off a credit-market-induced depression, which we’ve previously discussed and I’ve noted your disagreement with - but it’s a price we knew we’d pay. The cost/push inflation from the rising oil prices coming at the same time is just extra pain.
A few of the other central bankers have been making anti-inflationary noises, which caused the dollar to drop last week, particularly the Swiss and the ECB (competing currencies became a more attractive bet), and with Bernanke’s comments at the last meeting the Fed is definitely through cutting interest rates for the time being. The question is: when will the Fed need to raise them again?
ADDENDUM: On oil prices, this is good: Crude oil: Rounding up the bad guys - Oil companies (1) - FORTUNE
On their point on producers though, they fail to consider the most obvious kind of speculation for producers: leaving more of their product in the ground than would be a current profit maximizing amount (typical of monopolists/cartels).
[quote]BostonBarrister wrote:
On their point on producers though, they fail to consider the most obvious kind of speculation for producers: leaving more of their product in the ground than would be a current profit maximizing amount (typical of monopolists/cartels).[/quote]
That’s because it is counterintuitive to a profitable business model. It is cheaper to pump as much as possible and just hold it off the market. Once the work is done they quit accruing costs for pumping.
Then we must consider that holding a supply off the market also has the effect of signaling other producers into the market which creates competition and a possibility that they will lose some profits from subsequent lowered prices. In the absence of government protection it is a gamble no matter what decision is made.
[quote]
BostonBarrister wrote:
On their point on producers though, they fail to consider the most obvious kind of speculation for producers: leaving more of their product in the ground than would be a current profit maximizing amount (typical of monopolists/cartels).
LIFTICVSMAXIMVS wrote:
That’s because it is counterintuitive to a profitable business model. It is cheaper to pump as much as possible and just hold it off the market. Once the work is done they quit accruing costs for pumping.
Then we must consider that holding a supply off the market also has the effect of signaling other producers into the market which creates competition and a possibility that they will lose some profits from subsequent lowered prices. In the absence of government protection it is a gamble no matter what decision is made.
:)[/quote]
Agreed - by “producers” I meant Saudi Arabia, Russia, etc.
Though I guess I could mean the U.S. too… http://money.cnn.com/2008/06/06/news/economy/birger_shale.fortune/?postversion=2008060617