Friday, 20 May 2022

The cost-of-living crisis: "It’s not such things as 'supply shocks' or war that are responsible"

"All of this [i.e., rapidly rising costs and the resulting cost-of-living crisis] is the result of continuous inflation of the money supply by [central banks]. As a result of the [bank]’s actions, tens and hundreds of billions of new and additional dollars have poured into the economic system, correspondingly increasing spending and driving up prices. There are more and more billionaires and millionaires and shockingly high-priced goods simply because of the flood of new and additional money coming from the [banking system].
    "It’s not such things as '[supply] shocks' or [war] that are responsible. Without the flood of new and additional money, increases in the price of oil and [groceries] would be accompanied by decreases in the price of practically everything else. This is because practically all of whatever additional money was spent in buying oil et al. would have to be taken away from spending elsewhere, since the overall total ability to spend in the economic system would be limited by a limited quantity of money. And the rise in the price of oil and [groceries] would also not be nearly as great as it has been....
    "The [central banks] and the rest of government seem to think that their job is always to be sure that the stock market averages and the price of homes is never to be allowed to fall too far below their most recent peaks, and to flood the economy with as much new and additional money as may be required to accomplish this.... One would think that a sharp reduction in home prices is the very thing needed ... and that the process needs to go a good deal further than it has, in order to do so.
    "For the present and the foreseeable future, there is probably nothing that will stop the [central banks] from continuing with its inflation. Leading pressure groups are ardently in favour of it: ... share owners want it; the great majority of businessmen large and small want it; bankers and brokers want it; homeowners want it; labour unions want it; the political establishment wants it.... To the extent that the environmentalist agenda of declining energy production is imposed, inflation will be used to finance subsidies to the growing numbers who will be impoverished by it. Their expenditure of those subsidies will drive up prices for everyone else and cause further impoverishment and the need for more subsidisation and for still more inflation to pay for it."
~ George Reisman, from his post 'A Creditor's Protection Bill' [emphasis added]. For a more detailed explanation of why "supply shocks" do not cause economy-wide price increases, read Chapter 19 [starting page 895] of his economic treatise Capitalism [free pdf here]

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