Reply To: Monetary inflation


Money proper on the unhampered market economy, according to Mises, is a commodity, e.g., gold. The production of all goods in the market economy, including gold coins, is regulated by profit and loss. Each line of production of the various goods expands until no additional profit can be earned by further production. In the market economy, therefore, the only justification for an expansion of production of any good is if demand for it increases. Then, revenues will exceed costs for some expanded production. No entrepreneur expands production of a good if demand has not risen. If he did so, he would suffer losses. Gold miners don’t spontaneously start producing more gold. If they did the would suffer losses on such production. If demand has not increased, they would have to lower the price of gold to sell the added supply and their costs of production for the additional supply would rise (or at least, not fall). If Apple, Inc. increased production of the iPhone 7 by 20%, they could sell the larger supply only at a lower price. To ramp up production by 20%, they might have to pay overtime to labor or premiums to suppliers, etc.

Mises, then, is just applying this general principle, that production of a good is regulated by profit and loss, to money itself.