Why the Poor Are Responsible for Price Inflation

Left to their unrestrained preferences, both the rich and the poor would consume without limit. However, only the poor are limited by running out of money. The rich run out of time and are limited by the opportunity costs of one form of consumption precluding another.

This means that if new money is printed and distributed, it is only the poor who see an easing of limits and bid up the prices of the goods in which they have an interest. The rich will hardly notice.

As a corollary, substituting a hypothetical direct transfer of money from the rich to the poor for newly printed money will produce nearly the same price inflation as printing.

Note that bank credit expansion and market interest rate suppression will produce effects that are significantly different than the simple printing of new money.

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This would be true if the

This would be true if the rich kept their money under their matress. However, in the real world it is generally saved and then loaned to other people.

Your statement remains true for balances held by rich people for liquidity's sake. But how much money does Bill Gates keep in cash for a rainy day? I doubt very much. Most is probably in equities and bonds.

Jacob, This would be true if

Jacob,

This would be true if the rich kept their money under their matress. However, in the real world it is generally saved and then loaned to other people.

In my absurdly oversimplified model, poor means someone whose consumption is limited by a shortage of money and rich means someone whose consumption is limited by a shortage of time. For prices to rise as a result of new money, the new money must be made available to the 'poor'.
This can either be direct or indirect, eventually ending up with the loans of the rich. Only people who are sensitive to the quantity of money that they possess can bid up prices. For the others, the prices will already be as high as they can be.

Regards, Don

You've neglected the

You've neglected the marginal poor person, who would be time-limited with a dollar more, but alas today is dollar-limited, and vice versa. The inflation rate in this (slightly bizarre) model is going to depend on the density of people at that margin, which will work against the inflation you describe.

Don, I respectfully

Don,

I respectfully disagree. If the rich transfer some of their money to the poor and the money supply and/or the demand for money doesn't change, then there can be no inflation. Prices for some goods will rise relative to the average and prices for other goods will fall relative to the average; but that isn't inflation. Inflation was, is, and always will be a monetary phenomenon where an alteration of the supply of and/or the demand for money such that the perceived purchasing power declines. In a real inflation, everyone participating in the market will alter their behavior.

Charles, I respectfully

Charles,

I respectfully disagree. If the rich transfer some of their money to the poor and the money supply and/or the demand for money doesn’t change, then there can be no inflation. Prices for some goods will rise relative to the average and prices for other goods will fall relative to the average; but that isn’t inflation. Inflation was, is, and always will be a monetary phenomenon where an alteration of the supply of and/or the demand for money such that the perceived purchasing power declines. In a real inflation, everyone participating in the market will alter their behavior.

Forget the word inflation and concentrate on the details. Everything that happens in the economy is the result of the actions taken or not taken by individuals. If the rich don't respond to incremental amounts of additional money, they won't respond to decremental(?) amounts of reduced money either, as long as you don't bring it to their attention. The poor will spend their new money independent of its source.

Regards, Don

"The rich run out of time

"The rich run out of time and are limited by the opportunity costs of one form of consumption precluding another."
Really? I don't think so, I figured when the rich ran out of time they respond the same way they do when they run out of anything else: they hire someone to do it for them.

Having cash lying around in a mattress does nothing, so they hire financial advisors to spend the money for them on capital goods and honorable charities.

Don, Again I respectfully

Don,

Again I respectfully disagree. How do you know that the 'poor' will spend their new money regardless of its source? Everyone has time preferences for holding money ('poor' or not), and will act when, where, and if an economic decision is made. A dollar in hand today is worth more than one tomorrow even when there are no supply or demand changes for money. Inflation is, was, and always will be a monetary phenomenon. Prices and price changes do not an inflation make. I suggest that you read "Human Action" and "Theory of Money and Credit" for a more in depth treatise on this subject.

Charles, Again I

Charles,

Again I respectfully disagree. How do you know that the ‘poor’ will spend their new money regardless of its source? Everyone has time preferences for holding money (’poor’ or not), and will act when, where, and if an economic decision is made. A dollar in hand today is worth more than one tomorrow even when there are no supply or demand changes for money.

The word 'spend' is a shortcut for whatever the poor decide to do with their new money. If they get a blank envelope filled with FRNs, it should not matter initially whether the source was BG or the Treasury printing press. If it does make a difference, even if they know the source, then that involves some pecularity of no interest here.

Inflation is, was, and always will be a monetary phenomenon. Prices and price changes do not an inflation make. I suggest that you read “Human Action” and “Theory of Money and Credit” for a more in depth treatise on this subject.

Yes, but the consequences of any concrete monetary phenomena are a matter of economic law, and not which of the million different definitions of 'inflation' you subscribe to.

Mises recognizes this, and somewhere laments (paraphrase) "... there no longer exists any word which means what 'inflation' used to mean."

The key point is that monetary supply expansion, by itself, does nothing. All of the effects are the result of individuals changing their behavior in response, primarily to the part of the new money that comes into their possession.

Regards, Don