[mcsluggo]

Originally Posted by alexamenos

You're of course right.

About the surfing the net for porn, I mean.

I can't quite agree that increasing the money supply is not inherently inflationary. Ceteris paribus, none of us would argue that an increase in the money supply is inflationary.

You say that "In an expanding economy you have to expand the money supply continuosly in order to maintain a nuetral monetary policy"....

I would first of all question who "you" is in the context of this sentence, then I'd question why you must expand the money supply with the economy. Without conceding that maintaining a "neutral monetary policy" is self-evidently a good thing, I'd point out that the Fed hasn't come close to maintaining a neutral monetary policy since the demise of bretton woods -- I can remember when a soda pop cost a quarter, today that same soda is about a buck-twenty-five. whatever that is, it ain't neutral.

this is the "royal you". as in whomeverthefuck is doing it. Beyond that I made no value judgement on whether raising the MS is a good thing or bad thing, it is simply the PRICE nuetral monetary policy, if the economy is expanding and the MS is held fixed than you have a deflationary (rather than nuetral) monetary policy. In fact the fed does not persue a zero inflation monetary policy, because defaltion is a bigger economic pain in the heiney than inflation, and since the feds policy lever are incapable of directly steering the level of inflation (than can only "nudge" it), they maintain a core, non-zero, level of infaltion as a buffer (to avoid deflation).

Furthermore in the 60s and 70s there were "activist" fed boards that sought to exploit an inflation versus economic expansion tradeoff that is unexploitable in the long run, this (along with the oil shocks) caused inflation to become inbedded in expectations and required a huge monetary contraction in 1980 to stamp it out. (which is why you will never see 25cent sodas again)

....finally I'd point out that increasing the money supply raises prices versus what prices would have been in the absence of an increase in the money supply.

Sure, general price levels may be lower after the increase in money supply than they were before the supply increase, but they are nonetheless higher than they would have been in the absence of a supply increase. This, in my view, is to say that a money supply increase is inherently inflationary.

well, whatever.
Q: will a continuously expanding MS lead to inflation?
A: No, not at low levels of expansion, for a growing economy.

I don't belabour this point because I like to argue trivalities but instead because it is necessarily, inherently, absolutely the case that printing new dollars decreases the amount of stuff that old dollars will buy.

No. In an expanding economy a constant MS leads to deflation. Period. Therefore an expanding MS is needed just to stay even.

i would argue that this is a strength of a sound money policy rather than a weakness.

I would argue this, but I'd really rather look at nekkid women right now...you understand.

Cheers

greater uncontrollable volatility of the MS is a strength?

(given the draw of Nekkid women, I assume you won't anwer til tomorrow.)