November 23, 2015 at 7:35 pm #18618
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.
Pat GilbertNovember 24, 2015 at 8:43 pm #18619
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:
Here is one of the TMS charts:
Here are more charts:
The BLS began to compute gross output in 2014. Its series only goes back to 2012:November 25, 2015 at 12:01 am #18620
Thank you for the reply Professor Herbener
Why doesn’t the first graph here:
correlate with this graph?:
I do not see a correlation between the 2nd graph here:
and any graph I can come up with at the BEA site. Why is that?November 25, 2015 at 11:15 am #18621
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.November 25, 2015 at 2:52 pm #18622
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?November 27, 2015 at 2:01 pm #18623
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:
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