Can inflation persist without money?
Date posted: July 27, 2011
There are worries about inflation today. Are we powerless against inflation, or can it be controlled? N.C. Cooperative Extension economist Mike Walden weighs in.
“Well, there’s a viewpoint in economics that says that there is a link that can be controlled, and it’s the money supplied. That is, this viewpoint says that inflation is always a monetary phenomenon. And what it bases that notion on is that inflation results when we have too many people trying to buy things and the supply is not increasing at a commensurate rate.
“So, for example, you go to the Farmer’s Market. Everyone tries to buy apples. If the supply of apples isn’t adequate, price is going to go up. But if people did try to buy more apples, and they spent extra money on apples, and their money supply was the same, that means they would have to buy less somewhere else.
“And so these monetary economists, if you will, argue that, yes, you can always have prices rising in one part of the economy, but if the money supply isn’t changing, that will be counter-balanced by prices going down in another part of the economy. So, these folks focus on the Federal Reserve and the amount of money the Federal Reserve is supplying to the economy. And that’s, again, why some people are concerned about inflation — maybe not right now but down the road. And that the Federal Reserve has created a lot of additional money over the last year and a half.
“Much of it is still sitting in the vaults banks, but if it got deployed and spent, we could have a big inflation problem.”
Category: Economic Perspective