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Source link: http://archive.mises.org/14727/the-politics-of-monetary-policy/

The Politics of Monetary Policy

November 23, 2010 by

The economist should not allow his readers to accept the current myth that inflation is a scourge that governments try, with varying success, to keep in check. This myth is one of the consequences of economists generally failing to make explicit their assumptions. FULL ARTICLE by W.H. Hutt

{ 6 comments }

fundamentalist November 23, 2010 at 4:36 pm

Economists today don’t say the state fights inflation. They say inflation is good and necessary. It only becomes bad if it reaches to great heights.

Ed November 23, 2010 at 10:45 pm

Rather than using the gold standard, which gives inordinate influence to the owners of the bulk of the gold supply (the banks), why not forget about pegging the value of the dollar, and instead peg the money supply to GDP, since it is really productivity that gives money its value, not what is theoretically backing it.
If you doubt me, consider this:
1) Inflation can happen even with a gold standard
2) Inflation is defined (by some) as too many dollars chasing too few products
3) A dollar is in reality a certificate of productivity. You go to work, and are given $100 for your day’s efforts. You need a new pair of shoes, you go to the shoe store, and they have determined that the pair of shoes you like are worth 80 units of their productivity, so they ask for 80 dollars in exchange for the shoes. This will still happen whether or not there is gold in a bank vault somewhere that the two parties are completely oblivious to.
4) A money supply GDP standard takes the money printing decision out of the hands of bankers and politicians, and puts it in the hands of we, the people. If we want more money in aggregate, we just do what we would normally do, get up and go to work. Higher productivity yields higher GDP, which yields a greater money supply.
5) It still results in a stable dollar.
6) It places more stringent limits on government spending.

guard November 24, 2010 at 5:42 am

I’m no expert on this by any means, but wouldn’t a free market do just that? “Peg” the money to production rather than pegging it, one way or another, to the barrel of a gun?

P.M.Lawrence November 25, 2010 at 1:35 am

… it is really productivity that gives money its value, not what is theoretically backing it… A dollar is in reality a certificate of productivity. You go to work, and are given $100 for your day’s efforts. You need a new pair of shoes, you go to the shoe store, and they have determined that the pair of shoes you like are worth 80 units of their productivity, so they ask for 80 dollars in exchange for the shoes… Higher productivity yields higher GDP, which yields a greater money supply. [emphasis added]

You are confusing productivity and production. It’s quite possible for productivity to go up by reducing the inputs, sometimes even when the production (outputs) go down. Firms like productivity increases either way, because either gives them more profit, but what people themselves actually want, and what the paper certificates mostly and roughly correspond to, are the outputs.

Dave November 24, 2010 at 9:50 am

I have not seen the government ever say they want to eliminate inflation, on the contrary they allways have a “target” inflation rate. The target inflation rate is generaly 2%.

Of course they determine the rate and quantity of inflation through data manipulation so you really never know how much inflation is taking place.

John A Bennett N November 24, 2010 at 11:35 am

What is the real motive behind the 2% rate? Instead of “target inflation rate”, might it not be a ‘budget inflation rate’. I’m no expert either… just asking, for if the only reason behind it is just a trough to divert funds to political means, the we are back to what Hutt calls “electoral wisdom”… And, when will that be?

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