How Inflation Works

One thing that's become abundantly clear in the comments of the last few videos is that very few people

understand inflation, what it is, what causes it, and whether it's good or bad. So here, I'll once again go

back to the basics and cover the issue from the ground up.

Category:

Education

Tags:

• inflation
• economics
• politics
• great
• depression

[adhocrat1]

Don't think that the economy actually recovered until after WWII. Drafting 11M men is not the same as full employment, and there was still strict rationing all through the economy. It wasn't until 1946 that the government finally dropped much of the depression and wartime controls and freed the economy. 

[shanedk]

@adhocrat1 You're correct; not only did they drop the controls you mentioned, but they cut spending 60% and taxes 30%. They did the exact opposite of what political economists insist government has to do to fix the economy, and the next couple of years were very prosperous.

[krillin876]

@shanedk here is where i disagree where money supply has no bearing,, if the money supply falls, that means prices should fall also. But they didnt, contrary to popular belief, prices never were allowed to adjust to money suppley level. The government used tactics like NRA( national rec act.) and protective tariffs which ultimately made us much poorer and causing the depression.

[shanedk]

@krillin876 I never said it has no bearing. Look at my video on the Great Depression.

[thesilverjournal]

Not only is the amount that prices rise an inflation tax, but also the amount that prices didn't fall is also included in the inflation tax. Due to improvements in productivity, more goods are created so prices should be falling. On the gold standard, prices fell and the economy boomed.

[shanedk]

@thesilverjournal Correct. As I said in the video, deflation is only when prices fall because of the money supply. If prices fall because productivity is more efficient, then capital is freed up and everybody's paycheck goes further. The Monetarists who strive for price stability are misguided in this way; creating money to get prices back up causes the exact same harm that inflation does.

[pythor2]

KEYNES:

You too only see what you want to see.

The spending on war clearly goosed GDP.

Unemployment was over, almost down to zero.

That’s why I’m the master. That’s why I’m the hero.

HAYEK:

Creating employment is a straight forward craft

when the nation’s at war and there’s a draft.

If every worker were staffed in the army and fleet

we’d have full employment and nothing to eat.

[adhocrat1]

@shanedk You and I, and Tom Woods, know this. Why don't our politicians?

Rhetorical question, but still a good one. It leads to the thought that maybe politicians don't much care about truth and reality. And they certainly don't have our interests in mind when they pass legislation.

[TheDano1947]

Isn't government and the FED really great.? They stick us and we smile.

[shanedk]

@evensgrey Oh, plenty of others, and yes they were bad: America after the Revolutionary War; America after the Civil War; Brazil in the 1990s; Yugoslavia in the '90s (probably the worst one in history); the Soviet Union; ancient Rome, LOTS of them...