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Ok, so full disclosure -- Austrian monetary theory makes sense to me in a way that no other form of macroeconomic theory has since. I'm open to being convinced that monetary inflation is a necessary or good thing, but I haven't yet. Most of the arguments I've heard seem to take the form of -- we've been doing this thing (increasing the money supply) and if we stop, everyone who has debt is suddenly going to be in a lot of pain. I get that, and I agree, it makes sense. Maybe you or someone can help me out here -- what I don't get is why we need to keep increasing the supply of money in the first place. Forgetting the situation that we're in at this point (where we don't want to stop increasing the money supply), what bad thing would happen if we had said from the start: here's the number of dollars, that's it? If we have more people, those dollars will get more valuable, because more people will want dollars. If we have more goods, those dollars will get more valuable, because they'll be scarcer relative to the goods. I've heard and understand the argument that people don't like having their salaries cut, and that's something that would have to happen sometimes if money kept getting more valuable. But I don't see how that's really a big issue. Companies that paid their employees too much, and ran out of profits, would simply go out of business, no? The employees would then look for jobs elsewhere, and the market would be paying a bit lower. After a certain amount of time, I expect business owners and employees would get used to the reverse of the current situation -- you get a pay cut every year, unless you're increasing your value to the company, in which case you keep the same salary (or maybe get a small raise). It feels like the whole sticky wages argument is kind of based on claiming that the average citizen is like a child that thinks that water in a taller, thinner glass is more, which, while I'm sure is true for a few folks out there, doesn't seem to me like a good enough reason to do something as drastic as deciding that we need to continuously increase the money supply. People very clearly understand that with inflation, you may get a raise and still be poorer. If "sticky wages" were the only consideration, maybe it would make sense to increase the money supply, sure. But I think the Austrian economists have a good argument that doing so adds an external factor into economic calculation that makes planning for the future harder -- you now not only have to try to predict how the prices of goods and services and so on will change due to supply and demand, you also have to factor into your prediction any distortions due to the central bank's changing monetary policy. Keeping the money supply static turns one big variable into a constant. |