Understanding The Inflation Problem

The comments below are an edited and abridged synopsis of an article by Alasdair Macleod

Inflation has become a major economic concern. Nearly all the commentary from monetary policy makers, economists, and the media is misguided, believing inflation is rising prices and must be addressed accordingly.

Understanding The Inflation Problem - BullionBuzz - Nick's Top Six
Inflation Graphic to illustrate rising inflation

They are only the symptoms of inflation. The true cause is the expansion of currency and bank credit, which, reflected in the US dollar’s M2 money supply has increased substantially since March 2020, and now stands at nearly three times the level when Lehman failed.

After defining the differences between money, currency and credit, which together make up the media of exchange, this article explains how changes in the quantities of currency and credit translate into prices.

The solution to the inflation problem is not price controls, which are always counterproductive, but to return to a regime of sound money. This article shows what must be done to achieve this outcome and concludes that it is impossible to do so without a sufficiently serious financial and economic crisis to discredit government intervention in markets and to then allow governments to stabilise their currencies and reduce their spending to a bare minimum.

Up for discussion: Defining inflation, money, currency and credit; the consequences of inflation; the link between changes in media of exchange and consumer prices; the solution to the inflation problem; and stabilizing purchasing power.

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