Re: Inflation? That's not inflation....

"David Friedman" <ddfr@xxxxxxxxxxxxxxxxxxxxxxxxx> wrote
In article <jbmKi.240497$fJ5.40136@pd7urf1no>,
"Karl Johanson" <karljohanson@xxxxxxx> wrote:

"Keith F. Lynch" <kfl@xxxxxxxxxxxxxx> wrote
Seth <sethb@xxxxxxxxx> wrote:
Keith F. Lynch <kfl@xxxxxxxxxxxxxx> wrote:
To correct my answer to Tim, yes, if Bill Gates were to burn
a billion dollars in cash in his fireplace, he will have made
everyone a total of a billion dollars wealthier, i.e. made the
average American about $3 richer. Of course people with more
savings would benefit more, those with less savings would benefit
less, and those in debt would be harmed (since it would harder
for them to earn the money to pay off the debt), but the average
benefit would be three dollars per person.

I disagree. The total money supply is not the same as the total
cash supply.

So? There are plenty of billions of dollars that he *didn't* burn.
What difference does it make how many of them are in the form of
currency and how many are in the form of entries on a general
ledger?

If a billion dollars of currency is destroyed, but no food, houses,
television sets, or whatever are destroyed, the total amount of
actual
wealth in the world is unchanged. Since Bill Gates is a billion
dollars poorer, other people must be a billion dollars richer.

If you assume they would have spent them at the same rate. Money is
like
blood, it does it's work when moving about. A dollar can be spent
over
and over, in each case helping facilitate trade.

It rather sounds as though you are channelling an 18th century
mercantilist. Do you think that increasing the number of dollars in
circulation increases the amount of trade?

I think that having a monetary system facilitates trade. There are times
and conditions where adding currency will increase the amount of trade,
and there are times and conditions where it will decrease the amount of
trade. The specifics of when for each case are extremely complex, and I
don't pretend to know them in detail.

The question here is what determines the price level. For that it is
useful to look at the demand for money--i.e. at the amount of money
people choose to hold. From that standpoint, money does its work as a
sort of shock absorber--a way of keeping people from having to sell a
dollar's worth of goods every time they want to buy a dollar's worth.

Yes, well said. But again, the same dollar can be used over and over,
allowing each person in the chain to not have to sell a dollar's worth
of goods every time they want to buy a dollar's worth.

Karl Johanson


.

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