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An Austrian Analysis of Inflation

From: Nicholas Zurfluh

Subject: Deflation or Inflation

Dr. Block,

I have a question. Between the recent activities of the Federal Reserve and the Federal Government making large transfer payments to various businesses and individuals I am reading about concerns of hyperinflation. Could it be that deflation is the expected outcome of this particular demand side shock and that the monetary interventions by the Feds are countervailing? Would a general price deflation be good for everyone in this economic circumstance?

Nicholas Zurfluh

Dear Nicholas:

As Austrians, I don’t think we can say, definitively, that the massive recent increase in the money stock will lead to inflation. All we can say is that the rate of price increases will now be higher than they otherwise would have been, had the fed not followed such an inflationary policy. Who knows? An increase in the demand to hold money might offset all or some of these otherwise inflationary tendencies.

Best regards,

Walter

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2:36 am on July 3, 2020