Comment by randomdata | Hacker News Reader

Comment by randomdata | Hacker News Reader

Parent Full thread

> Inflation can be seen as just the increase in money supply or an increase in prices.

Not quite. Price measures the values of the items being exchanged on both sides of the transaction. If you buy my widget for $1 today, and tomorrow you buy another for $2, that could mean:

1. The value of the currency has decreased.

2. The value of the widget has increased.

3. Some combination of both.

Inflation is only concerned with #1 and we attempt to suss out only the currency component by observing the change in price over a wide range of items frequently transacted for currency, which in practice typically means watching consumer purchases. If you see a general rise in price across all of what you are watching, it is quite likely that the change is a result of the change in value of the currency. If only one good in a basket goes up in price in those observations, it is likely that it is said good that became more valuable, not that the currency became less valuable.

This was very simply explained.

IMF: Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

Milton Friedman (famous Economists) “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

My take is that if more money is produced they will chase the same amount of good until the prices increase enough to accommodate the new money.

Carl Barks described inflation in the best way in his 1950 Donald Duck classic: "A Financial Fable"

https://en.wikipedia.org/wiki/A_Financial_Fable

> My take is that if more money is produced they will chase the same amount of good until the prices increase enough to accommodate the new money.

More or less. Money is debt – an IOU, a promise to delver something in the future. Another way to look at it is: Inflation occurs when the promises made cannot be delivered on in full.

There is still a human element to consider, though. For example, where the promise is held can be a factor. Promise Jeff Bezos one billion high fives and you'll be fine as there isn't enough time in the day for him to collect on them all anyway. As far as anyone knows the promise is good, it just hasn't be called. Promise one billion different people one high five, though, and now you've got a problem. It is now you who doesn't have enough time in the day to deliver on them all. Once you have proven you cannot deliver, then it is known that the promises aren't worth as much as when they were made.

In both cases you have created one billion new 'high five bucks', but high five buck inflation is apt to only occur in the latter case. In other words, creating more money doesn't necessarily lead to inflation, but it is, indeed, necessary for there to be relatively more money (promises made) than output (promises delivered) to see inflation occur.

Reply on news.ycombinator.com