Is fractional reserve banking inflationary?

What other reason do you think would cause the price of money to fall relative to everything else.

Is it a general rise in prices? If so, then yes.

No, because inflation is a general rise in prices, not the rise in price of some things relative to other things.

Unclear as to what you are asking here.

 

There are two possible types of causes: Either the cause could be the worth of money going down, or the cause could be the prices of things going up.

What part of that do you have trouble understanding?

I am talking about the root cause here, not what is observed.

 

They are the same thing. The price of money going down and the price of everything else going up. Two sides of the same coin.

 

Do you understand why it could be important to identify the cause of that relative change?

And I presume you believe it is inflation regardless of the cause?

 

And despite how you prefer to phrase it, inflation driven by prices of goods going up (as the root cause) is NOT a monetary phenomena!

I don't like you phrasing it that way because it can be very confusing.

 

But a general rise in the price level can only occur in a monetary economy. It cannot occur in a barter economy. Therefore it must always be a monetary phenomenon

 

How could prices going up across the board not be a monetary phenomenon?

Always a consummation devoutly to be wished...

 

My numerous examples already listed in this thread were not enough for you to understand?

Again, "monetary phenomenon" gives a vague meaning and ambiguous connotations.
Please do not use that term, because I am not sure what exactly that means, and I do not want to have a semantic argument with you here.

 

No, because they made no economic sense.

 

Do you care to try to explain exactly what you mean when you say "inflation is a monetary phenomenon" ?

Because so far, your explanations have not been clear enough to me, and have even seemed contradictory.

I am talking about causes, whether a relative price change is caused by the money, or caused by the things. Do you understand that?

 

It is caused by a monetary system -- a mechanism for creating money and injecting it into the economy -- that prioritizes added wealth for the money issuer over price stability.

Do you understand what I wrote above?

No, I don't know what you mean by, "caused by the things."

 

Yes...

Okay, now we may be getting somewhere. Now you have clearly stated the problem why you don't seem to understand.

It can be caused by the monetary system, and usually is, but that is not always the case.
There are sometimes other factors, besides the monetary system, that can cause a rise in prices (or inflation, if you want to use that term here).

I will repeat some of the things I wrote before.
One example was the Energy Crisis in the 70s. OPEC restricted the supply of oil on the world market and drove prices up. This sent consumer shock trickling down throughout the economies in Europe, Japan, and America. Because pretty much the entire economy was based on energy (oil). So an increase in the price of oil resulted in an increase in the price of nearly everything else in the economy, all sorts of consumer prices.

Certainly it wasn't completely uniform price increases, like you would find in monetary-caused inflation, but prices of all sorts of things went up across the board.
Wage levels did not increase though.

(To make things overly complicated, many economic essays and sources cite the Energy Crisis as a real-world example of a wage-price spiral phenomena, but I doubt that was actually the case. Because for one thing, the response from the Fed was actually to stop causing more inflation rather than actually creating a deflationary pressure, so I don't think wage price levels would have actually increased in the absence of monetary policy, and rising unemployment would have prevented wage level increases in response to increasing costs of living)

There is the theory of Wage-price spiral inflation, but I actually cannot find any real-world examples where this actually happened. Maybe someone can help so I can take a look at that situation. It's more a theoretical economic phenomena, I think, than actually demonstrated.

 

OK, that is a good example. The dramatic increase in oil prices had a number of effects. One was that more money left the country for OPEC countries, putting downward pressure on the money supply. Another was that production costs for many products increased significantly. In the absence of an increase in the money supply, these would have exerted a strong downward pressure on prices of things that were NOT dependent on oil, especially wages. Because wages generally do not respond to reduced demand for labor (unemployment), the Fed decided that was a recipe for a depression, so they reduced interest rates rapidly once it became clear that the USA was in recession:

https://www.frbsf.org/education/publications/doctor-econ/2003/january/monetary-policy-1970s-1980s/

Notice that in the early 70s, the Fed funds rate was rising while the M1 money supply increase rate was falling. That is what caused the stagflation, as it takes time for money to affect broad prices, while interest rates affect economic activity much more quickly.

Wages did continue to increase in nominal terms, but their purchasing power declined because inflation increased much faster:

https://www.pewresearch.org/fact-ta...rs-real-wages-have-barely-budged-for-decades/

 

As I stated, according to the wage-price spiral theory, there "should have" been an upward pressure on wages, but this was overridden by rising unemployment which resulted in an overall decrease in wages.
This is all theoretical and very contentious, and lots of economists would argue about this.

The connections between some prices are more direct than others. The question is whether the burden will fall on one party, or whether they can pass those costs on to another party.

It can make it confusing when there are multiple effects going on at the same time.

 

I would add - to bringiton's statement that "inflation is a monetary phenomenon" - the words: in a monetary system.

eg in the current neoliberal system in which money is created by private players who determine its 'value' in private markets.

But other economics schools, wishing to improve outcomes, introduce public management of money into "invisible hand" markets.

Now in this case, inflation becomes purely a matter of excess demand on available resources, because sovereign currency-issuing governments can always add or subtract debt-free money from the economy as required, to manage demand on said resources.

[In the 'supply inflation' caused by OPEC in the 70s, western governments could have simply created debt free money to pay for the same quantity of more 'expensive' imported oil, since their was no actual shortage of oil].

 

How does this make sense at all?
OPEC was restricting the supply of oil, which they knew would raise prices.
The only way western governments could have fought back would have been to unify together and create a price quota on oil. (which would be a legal prohibition on private buyers paying OPEC more)

If they simply issued more money, it would have simply driven up the unit price that buyers were paying. That is, due to buyer competition, the more money that was created, the higher the price of oil would have been.

Another interesting thing the governments could have done, potentially, would be issue more money, but keep it in the hands of government, and prevent it trickling down to consumers. This could have also theoretically prevented the price of oil from going up.

 

Ah... yes.
I was thinking OPEC simply unilaterally raised prices, rather than restricting supplies to the West.

Obviously, debt-free money issued by government would not have solved the problem of restricted oil supply.

 

Well, we can analyze that, a what-if scenario.
Suppose they had raised prices. Then the buying countries fought that with inflation. Presumably OPEC would have risen their prices even more.
It would basically be a battle that could not be won.