Cancell precedent mail that was not complete
> What causes inflation?
>
> that's simple: too much money chasing too few goods.
> ;-)
>
Such is the "quantity theory of money". But it would match reality, only if
adjustments between all goods an all money were simultaneous and
instantaneous. So are the exchanges in market-equilibrium models like
walras-Debreu's, explicitely or implicitely calling for the mythic and
universal "auctioneer". David Hume, who was the grand-father of the quantity
theory, saw prices rise "by degrees" ("Of money" in Essays). But what is the
variable of adjustment, as long as prices have not yet reached the
equilibrium level? Answer: stocks variation. If demand exceeds supply,
stocks drop and prices rise. When supply matches demand, stocks stop
dropping, but then prices have no reason to continue rising. And can the
stocks be dropping for tens of years? In other words, grand-father Hume
killed himself the quantity theory at birth. And this is the reason why
quantity theorists needed a newtonian market place. Modern theorists have
well understood both that weakness and the absolute necessity to save
instantaneity and simlulténeity. For that purpose, they invented "rational
anticipations", postulating, this way, that simultaneity and instantaneity
are present in minds of economic agents. Let us stop smoking.
Te truth is quantity theory is absolutely wrong. Money demand is not the
cause but a consequence of increasing prices, as Kaldor assessed it. All
historical cases of "inflation" or even "hyperinflation" involve a third
factor: growth or debt. Growth in long-term-inflation trends of Rome's world
system, of 16th-century Europe, of occidental world after second world war.
Debt in Weimar Rebublic of 1922-1923 and in today's Argentina, Turkey, etc.
Growth is simple to understand, as it exerts a permanent tension on stocks,
within an economic chain where basic activities are disadvantaged from the
point of view of productivity. Debt, of which the current payment can not be
covered by exports, lead either to a money scarcity, or to a currency
depreciation with respect to currencies in which imports are paid. And this
depreciation is reflected in all production prices. Money demand has to
follow, nothing else.
Regards
Romain Kroës
