"Richard Newell" <richard@n...> wrote:
you seem to poo-poo an inflation rate (using your own calculations) of
ONLY 4%.
Even if this number were "true", don't you agree that this amount of
misapproriation
of savings is immoral?
To expand on Derek's excellent answer: hoarding currency actually doesn't
even count as "saving" to an economist. The things that do count as savings
all have a return, and the market sets the return with inflation
expectations in mind.
I don't see why you subtracted the increase in the amount of goods
from the increase in the money supply in your calculation.
As Derek said: if the money supply doesn't keep up with the increase in
production, then (assuming a stable velocity of money) you by definition get
deflation. The identity is M * V = P * Q; for details, see
http://en.wikipedia.org/wiki/Quantity_theory_of_money.
the money supply should remain more nearly constant, and the benefits of
increased productivity should accrue to the savers and investors in our
society,
by a gradual increase in the value of their savings. After all, these
savings
and investments are largely responsible for the increase in productivity
Change "the money supply" to "prices", and I pretty much agree with you. A
constant money supply leads to deflation, and deflation discourages actual
investment, since under deflation hoarding currency will produce roughly the
same effect as investing normally would. Even worse, deflation can lead to
the sort of collapse in aggregate demand (i.e. consumption) that
characterized the Great Depression and the Japanese stagnation of the
1990's. For more information, see
http://en.wikipedia.org/wiki/Liquidity_trap.
Brian Holtz
Yahoo! Inc.
2004 Libertarian candidate for Congress, CA14 (Silicon Valley)
http://marketliberal.org/>
blog: http://knowinghumans.net/>
book: http://humanknowledge.net/>