Debate topic:
Elliot disagrees about government being the sole cause of inflation.
Letâs not jump into the middle of the discussion by bringing up banks yet.
Regarding the debate topic, I could probably guess your position and reasons, and skip some steps, but you canât usually expect people to do that in debates. You usually have to explain your position. So for tutoring purposes Iâll just ask:
What do you think inflation is?
Why do you think government is the sole cause of inflation?
Itâs occurred to me that what I said is strictly false. Inflation can occur wherever the money supply can be increased. And in an free economy that uses a commodity like gold as money, the supply of it can be increased by anyone who produces it (e.g whoever mines gold).
Does that address your disagreement, or did you have in mind the weaker clam that e.g, in a system of fiat money, like the USA, the government is the sole cause of inflation? Thatâs more what I meant.
I think inflation is an increase in the money supply. This increases aggregate demand which in turn results in rising prices.
Itâs often conceptually confused with the phenomena of rising prices. But rising prices can be caused by things that arenât inflation, and prices need not rise as a consequence of inflation if the increase in supply of goods and services is greater than the increase in the supply of money.
Because I think the government is solely responsible for the increase of the supply of money.
We can debate the weaker claim.
Why define it that way? New Oxford dictionary gives:
inflation
noun
2 Economics a general increase in prices and fall in the purchasing value of money: policies aimed at controlling inflation | [as modifier] : high inflation rates.
Why not partially blame economists, lobbyists paid by businesses, voters, counterfeit-money creators, or anyone else?
Why define it that way? New Oxford dictionary gives:
inflation
noun
2 Economics a general increase in prices and fall in the purchasing value of money: policies aimed at controlling inflation | [as modifier] : high inflation rates.
Upon reflection, I donât have an answer that I am fully satisfied with for this. I had taken after Hazlitt when he wrote in What You Should Know About Inflation:
Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit. In fact, inflation is the increase in the supply of money and credit. If you turn to the American College Dictionary, for example, you will find the first definition of inflation given as follows: âUndue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie.â
In recent years, however, the term has come to be used in a radically different sense. This is recognized in the second definition given by the American College Dictionary: âA substantial rise of prices caused by an undue expansion in paper money or bank credit.â Now obviously a rise of prices caused by an expansion of the money supply is not the same thing as the expansion of the money supply itself. A cause or condition is clearly not identical with one of its consequences. The use of the word âinflationâ with these two quite different meanings leads to endless confusion.
The word âinflationâ originally applied solely to the quantity of money. It meant that the volume of money was inflated, blown up, overextended. It is not mere pedantry to insist that the word should be used only in its original meaning. To use it to mean âa rise in pricesâ is to deflect attention away from the real cause of inflation and the real cure for it.
His main points here are:
- âinflationâ originally applied solely to the money supply
- more recently âinflationâ has been used to mean rising prices, which is a consequence of an increase in the money supply.
- these two meanings lead to confusion
- using it to mean âa rise in pricesâ deflects away from the real cause and cure (curtailing increases in the money supply)
I found this reasonable enough, but I think in general itâs probably fine to refer to [1]a general rise in prices across the economy as âinflationâ, as long as that is kept distinct from the concept of [2]price rises in general. Also, it seems like that[1] definition leaves more room for disagreement as to the cause of the general rise in prices across the economy. I do however sympathise with the view that âinflationâ should refer to an increase in money supply, because there are those who stand to benefit from the confusion over the causes of inflation.
I can see how counterfeiters would contribute to inflation. I hadnât considered that. That makes me change my mind. The government isnât the sole cause if counterfeiters cause it partially.
Correcting my position would then be: in a system of fiat money, the government is largely responsible for inflation.
Do you disagree with that?
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OK cool. So one lesson here is to be more careful with words that allow no exceptions, like âallâ, âneverâ, âsoleâ, etc.
But I think counterfeit money is a relatively small problem in English speaking countries today. Letâs keep analyzing. What about partially blaming economists, lobbyists paid by businesses or voters for inflation?
I can see a role that economists and voters could play. Economists make theories and get jobs as advisors of the government. Their conclusions and advice are used by politicians to make policy. Maybe if the field of economics agreed more about the phenomenon of inflation, the government would be able to get away with less re: inflation.
Voters choose candidates based on things like their proposed financial policies. They influence the staffing of the government.
How would lobbyists paid by business play into it? Some businesses in the short term may stand to gain from inflation. Iâm guessing they are ones that are able to access the newly printed money earliest, before it has begun distributing itself throughout the economy. So these businesses might lobby government to get access to the new money, perhaps in the form of grants/subsidies, or with banks being able to extend credit (not sure on details of this).
So these groups can all influence what the government does. They are potentially all able to influence inflation, through the authority of the government.
So perhaps looking at this being a âgovernmentâ problem is wrong? Is looking more broadly to the ideas in society better? The economists could fix their field, the voters could learn better economics, and the lobbying businesses could be less adversarial and oriented more to the long term?
You make it sound like economics is in chaos and then government uses the lack of organized opposition to get away with stuff.
That is not the situation.
Economics is comparably organized to many other fields. There are mainstream views with lots of agreement. And these economic ideas actively tell the government to do bad things.
Overall, one of your major errors here is looking at abstract logic and trying to reason quite complex things out from first principles. That is very, very, very hard to get right when one isnât paying much attention to reality and experience, and itâs unnecessary.
You can look at what companies have actually done in recent history. You can look at what economists have actually said in recent history. You can look at reality for examples to help guide your thinking instead of trying to speculate about what businesses might do.
You have a mental model of businesses. Even if youâre correct about what that type of business would do in the situation you imagine, that isnât very relevant. While there are theoretical ways to make use of it, thatâs hard, and there are better approaches. In the real world, the type of businesses that actually exist are different, and the situation theyâre in is also different.
In the U.S., the most recent major example is PPP loans (aka the government handing out huge piles of newly-created cash to businesses as COVID relief) and other COVID economy âstimulusâ stuff. And there are plenty of public statements by economists about economic policy related to COVID and the economic disruption it brought, as well as the contents of recent economics textbooks.
Yes. All these groups play some role in causing outcomes. No one group has sole, total power or sole causal relevance despite one group having authority over the mint. (BTW, I think the actual specifics of governmentâs control over our currency are complex, but I donât think we need to get into that.)
I think I shouldnât have commented like that because I donât actually know enough to judge what the field of economics is like. I also echoed that idea later when I said:
I think I donât know what Iâm talking about on the issue of the fieldâs organization. I think what I do know is that the views of the Austrian school on inflation are a minority in the field.
Sure. Looking at real events is something Iâve neglected. I have been mainly been learning economics through theory and have spent little time analysing the real world with it. A result of that is not being very familiar with recent economic history.
Cool, that makes sense. I agree that government is not the sole cause of inflation and that the cause of inflation depends things like which groups influence the government, and ideas more broadly.
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Do you want to end the debate here? Are you happy with this? Do you have questions? Want to make any more arguments?
I am happy with this. I can see the flaws in my initial position. I donât have any further arguments to make for that position.
I would be interested to know what your opinions are regarding the terminology issue that came up.
Also, what do you think of how I have handled myself in the debate? Do you have any comments?
It felt a bit scary doing this, like how it feels when youâre doing something very new and the stakes are kinda high.
Terminology issues arenât fundamental.
Maybe at the time Hazlitt was writing, trying to keep the original definition of âinflationâ made sense. Now maybe itâs too late and the language has already changed. But I donât know the history of the word well.
You did fine. Most debates are unproductive messes, and most people are hard to work with in my experience. So this went better.
I think trying to bring up banks and guess my position at the beginning was a mistake in terms of the organization or structure of the conversation. But I chose not to get drawn in to responding to that, and you didnât persist, so it wasnât a big deal. That was a point where, if you were talking with someone else, the conversation might have gotten messy.
Were the stakes high? Is there some sort of bad outcome you were concerned about?
Yeah I agree. I think it was perhaps also unnecessary to guess your position. One of the main things I was trying to do was to be honest throughout the debate. I think I thought it might be honest to mention it; my thought ~being that if it came up later in the debate that banks were a part of why I was wrong, and I had had that thought earlier, then I shouldâve brought it up somehow or flagged it as a doubt I had.
I donât think they were really. I think I was worried about a situation where Iâm in way over my head, am confused, and digging myself deeper. I wanted it to go kinda well and the problems to not be too big and scary.
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