Inflation, as most people generally interpret it, is "a persistent rise in the general price level, as measured against a standard level of purchasing power." This is currently the way that inflation is measured in North America and subsequent attempts on controlling it are based on these measurements. In Canada, when referring to inflation, we reference CPI, or Consumer Price Inflation. The Bank of Canada attempts to keep CPI in a range of between 2% and 3% through controlling the overnight lending rate or "prime rate" and this policy meets with some success.
"Mainstream economists' views of the causes of inflation can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest and output dominate over other effects. Keynesians also tend to add a capital goods (or asset) price inflation to the standard measure of consumption goods inflation. Other theories, such as those of the Austrian school of economics, believe that inflation is caused by an increase in the supply of money by central banking authorities."
The thought I wanted to put forward today is this: What if the current Keynesian view and approach is faulty? What if inflation is more accurately termed as the Austrian school view it as an increase in the supply of money by central banking authorities? If this is true, what would we observe?
"Mainstream economists' views of the causes of inflation can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest and output dominate over other effects. Keynesians also tend to add a capital goods (or asset) price inflation to the standard measure of consumption goods inflation. Other theories, such as those of the Austrian school of economics, believe that inflation is caused by an increase in the supply of money by central banking authorities."
The thought I wanted to put forward today is this: What if the current Keynesian view and approach is faulty? What if inflation is more accurately termed as the Austrian school view it as an increase in the supply of money by central banking authorities? If this is true, what would we observe?
To illustrate I've put together a chart comparing recent Consumer Price Inflation with the Bank of Canada M3 total Money Supply. The question I have is: Where does the money go once it is created? Consumer goods? Homes? Cars? Stocks? Equipment?
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