| Nice job missing the context: Inflation is good not because of inflation itself, but because of what it signals: a growth in demand outpacing the growth in supply. If supply is not outpacing demand, there are no investments in additional capacity. > thats actually how malinvestment occurs. No, that's how gains in productivity work. And that's how competition works. As demand increases, multiple agents will invest independently to supply that demand, leading to oversupply, leading to reduction in prices, leading to trimming out of inefficient capacity and a new equilibrium at a higher efficiency than before. That's the economic cycle. > price inflation is a necessary consequence of monetary inflation. But not vice versa, you don't need monetary policy to have inflation, you don't even need a monetary system, or even "money" or currency. Inflation is just a continuous change in value between two goods due to a difference in supply/demand between the two. If there were only two commodities in the world, A and B, both with the same demand, but A is being produced at faster rates than B, there would be inflation. > a gradual increase in prices is a sign that more dollars are chasing the same amount of goods, ceteris paribus. Indeed, so there will be more dollars invested in supplying those goods. > not sure that condescension is warranted. That's not a condescension, it is basic economics. |
price inflation is a signal of monetary inflation. you appear to be confusing price inflation with an increase in prices due to increased demand.
> If supply is not outpacing demand, there are no investments in additional capacity.
actually as long as marginal profit is positive there is an incentive to invest in capital goods.
> No, that's how gains in productivity work.
malinvestment is not productive, in fact it is destructive.
> But not vice versa, you don't need monetary policy to have inflation, you don't even need a monetary system, or even "money" or currency. Inflation is just a continuous change in value between two goods due to a difference in supply/demand between the two. If there were only two commodities in the world, A and B, both with the same demand, but A is being produced at faster rates than B, there would be inflation.
'monetary inflation' as defined in basic economics is an increase in the money supply. no one said you need monetary policy for the money supply to increase.
> even need a monetary system, or even "money" or currency.
thats very interesting, do you have a citation?
> As demand increases, multiple agents will invest independently to supply that demand, leading to oversupply, leading to reduction in prices, leading to trimming out of inefficient capacity and a new equilibrium at a higher efficiency than before.
thats how price signals work in a normal market. now consider what happens if a counterfeiter creates a bunch of fake dollars and spends them. people see the influx of cash, interpret it as effective demand, and invest in capital goods. then the counterfeiter gets caught and the money dries up, and all these businesses have excess capacity that shouldn't have been built in the first place. textbook malinvestment.
the same thing occurs when the government inflates the money supply, except the "counterfeiting" is legal and "we as society" accept this because the money is spent in "politically acceptable" purposes. it still causes malinvestment. which is something you can find in an intro to macro textbook.
> That's not a condescension, it is basic economics.
actually its quite condescending and it would help if you guys would educate yourselves on basic econ before presuming to lecture others on the subject. reading a basic macroeconomics textbook would do wonders for your perspective.