[iindigenous]

It seems to me that the money supply should correlate to inflation.

I read about the Austrian “True Money Supply” at Mises Institute.

Is there a graph that shows this correlation?

On a dis-related note I can not find the current chart for Gross Output as advocated by Mark Skousen. Any ideas?

I understand that Austrian economics does not lean towards the empirical but these charts would be useful.

TIA

Pat Gilbert

[jmherbener]

Like any other price, the purchasing power of money (which is the inverse of the prices of goods and services) depends on both demand and supply. Changes in the money stock and the demand to hold money determine changes in the purchasing power of money (which is the inverse of price inflation-deflation).

Here is a discussion of the TMS including links to a few charts:

http://wiki.mises.org/wiki/True_Money_Supply

Here is one of the TMS charts:

http://www.forbes.com/sites/michaelpollaro/2014/11/16/the-u-s-money-supply-decelerates-in-october-the-risk-of-an-economic-bust-just-went-up/

Here are more charts:

https://mises.org/markets-and-data

The BLS began to compute gross output in 2014. Its series only goes back to 2012:

http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=q&5102=15

[iindigenous]

Thank you for the reply Professor Herbener

Why doesn’t the first graph here:

http://www.forbes.com/sites/michaelpollaro/2014/11/16/the-u-s-money-supply-decelerates-in-october-the-risk-of-an-economic-bust-just-went-up/

correlate with this graph?:

https://research.stlouisfed.org/fred2/graph/fredgraph.jpg?hires=1&g=2Fye

I do not see a correlation between the 2nd graph here:

http://davidstockmanscontracorner.com/mind-the-b2b-trend-business-spending-is-rolling-over/

and any graph I can come up with at the BEA site. Why is that?

[jmherbener]

Money supply growth does not correlate with price inflation rates because price inflation depends not only on money supply but money demand. The growth rates of the money supply have been much higher than rates of price inflation in the last 8 years because people are holding onto money instead of spending it as readily as they normally do. The demand to hold money normally increases in a bust because people want to have liquid assets. Here is a story on the money holding of Apple, Inc.

http://www.telegraph.co.uk/finance/businesslatestnews/10760392/Apple-and-Microsoft-have-bigger-cash-holdings-than-UK.html

[iindigenous]

Thank you, I learned something. Somewhere I got the idea that availability was all there was to consider.

The other graph on gross output that Mark Skousen created seems like a very good predictor of economic activity. Yet the last time he updated the graph was from the 1st qtr of this year. I do not see a correlation to his graph to anything I see at the BEA site. Why is that?

http://davidstockmanscontracorner.com/mind-the-b2b-trend-business-spending-is-rolling-over/

[jmherbener]

Gross Domestic Product attempts to measure the production of all final goods and services in the economy. Gross Output attempts to measure all production, both of final and intermediate goods and services, in the economy. Although it might seem that the different components of these aggregates should move together, they do not do so in the face of time and uncertainty. For example, it might seem that Consumption and Investment expenditures should move up and down together making GDP = C + I a rather smoothly increasing statistic, one easily predicted by past trends. But the judgments persons make of their best courses of action change as they attempt to penetrate the fog of uncertainty. It’s well known that Investment expenditures vary more than Consumption expenditures over the business cycle. So a chart of Consumption would not correlate all that well with a chart of GDP over the cycle. The same thing can occur with respect to GDP and GO.

Take a look at the seminal work on Regime Uncertainty by Robert Higgs:

http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

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