Q. Under the Austrian School of Economics, and indeed by the predictions of its proponents, the huge, expansionary policies of the Federal Reserve should be causing run-away Inflation. Indeed, the cry for years has been to warn of dire hyperinflation should any of the no in place expansionary policies by tried. Yet this flies in the face of what we have seen, namely price stability (save for rising Oil Imports) resulting in an entirely normal inflation rate of 3%. How do you square this with your avowed Austrian view? — Whimsical Eloquence, from tumblr.
A. Most of my answer can be summed up in this graphic:
As you can see, the value of the dollar has steadily declined over the course of the last hundred years. It was also on the decline before then. If you’d like to play with the numbers on a year-by-year basis, try this inflation calculator. As the results of my calculation put it, “What cost $1 in 1900 would cost $25.85 in 2010. Also, if you were to buy exactly the same products in 2010 and 1900, they would cost you $1 and $0.04 respectively.”
That’s a lot of inflation, especially considering the lowering of prices which has been produced by technological advances, economies of scale, etc. Moreover, as you mentioned, I subscribe to Austrian economics, which sees inflation not primarily as a rise in prices — the rising prices are merely a symptom of the underlying problem of the (fiat) growth of the money supply, which has grown precipitously. Learn more here.
