Rapid Money Supply Growth Does Not Cause Inflation

Monetarists say that inflation is caused by a growth in the money supply—or money stock—by which they mean the amount of money "out there." For his 2016 article, Rapid Money Supply Growth Does Not Cause Inflation, Richard Vague compiled some data that suggest otherwise. He further challenges the idea that inflation is caused either by rapid growth in government debt, by declining interest rates, or by rapid expansion of the central bank's balance sheet.

This prompts many questions: What does cause inflation? What has been keeping the price level stable? What can governments and central banks do to cause inflation or prevent deflation? To what extent is it all a matter of degree? If money supply growth had been less rapid than it "needed" to be, would we have seen deflation? Or is money supply simply the wrong variable to look at? How can we know?

When central banks are targeting inflation, what can empirical data teach us about the nature of inflation? Does the absence of excess inflation imply that central banks understand how inflation works, or how to prevent it?

In this webinar, Richard Vague will be joining us to discuss these, and other questions about inflation and the price level.

About the author:

Richard Vague is Acting Secretary of Banking and Securities for the Commonwealth of Pennsylvania and serves on the Governing Board of INET. He is the author of A Brief History of Doom, a chronicle of major world financial crises, The Next Economic Disaster, a book with a new approach for predicting and preventing financial crises, and An Illustrated Business History of the United States, forthcoming in May 2021.