"I think the statement that all inflation ultimately has a monetary cause is an ideological fantasy. Then you have stopped thinking somewhere." The statement comes from the chief economist of Statistics Netherlands (CBS) recently in an interview in the FD. The conversation was about the current high inflation.
This is mainly due to the war in Ukraine. As a result, energy has become more expensive and energy is in everything. So logical. To say that the current high inflation is because of the war is to say that central bank policy has nothing to do with it. Since they are about the money supply, money does not matter for inflation. An 'ideological fantasy' and someone who believes that money does matter is simply stupid. Because that's what "you've stopped thinking about something" means.
A few notes on that. First, global inflation has been on the rise long before Russia gathered its soldiers on the border with Ukraine, let alone before the war started. To blame today's high inflation on that war isn't exactly thought-provoking if you ask me.
Money growth always and everywhere the reason
Second, I challenge anyone to show any period of prolonged inflation in the past, at any time, in which the money supply did not rise sharply just before and during that period of high inflation. In other words: past experience clearly shows that too much money growth has always and everywhere been the reason for persistent inflation. No money growth, no inflation. So no 'ideological fantasy', but the hard reality. Except for the chief economist at CBS. He lives in an 'ideological reality'. A bubble is the modern term I believe. One of the hallmarks of life in that bubble is apparently a harrowing lack of knowledge of monetary history.
An example that money and inflation are the economic yin and yang is the period since 1971. Since August of that year there is no limit to how much money central banks can print. That they have made use of this is clear from figures (for me the reason to devote an entire book to it, 'Keerpunt 1971'). It is no coincidence that the world has had to deal with rising prices year after year since 1971. Money is good like any other good: the more of it there is, the less it becomes worth. Again a harsh reality and basic law of economics.
Call to step on the brake
The only thing I would call "ideological fantasy" is the claim that money has nothing to do with inflation. Although, ideological stupidity might be a better term. By the way, on Tuesday the International Monetary Fund warned that high inflation threatens to curb economic growth and lead to social unrest. The IMF therefore called on the central banks to step on the brakes.
That must have been a strange message at the CBS office. Central banks to curb inflation!? Why, the high inflation was due to the war and has nothing to do with monetary policy and money supply!? Well, apparently 'ideological fantasy', after countless economists and economic historians, now also has the IMF in its grip. Fortunately, we have the bastion of monetary sense here in our own country, CBS itself.
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