Growth and Inflation

by Don Boudreaux on April 12, 2010

in Growth, Inflation, Myths and Fallacies, Prices

Robert Samuelson makes many good points in his column in today’s Washington Post.  But unfortunately he accepts the pop wisdom that rapid economic growth causes inflation.

Real economic growth happens when technology and social institutions improve in ways that raise productivity.  Higher productivity not only lowers cost per unit of output, it increases total output.  This higher output, in turn, lowers prices (unless it is matched by an increased supply of money).

If inflation is caused (as it is) by “too much money chasing too few goods,” inflation cannot also be caused by “a fixed amount of money chasing ‘too many‘ goods.”

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