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On Inflation

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Here’s a letter to Politico:

Editor:

Victoria Guida offers the following as a reason for the 1970s’ high inflation rates: “double-income households as women entered the workforce in droves” (“Why big-spending Biden can shrug off GOP warnings of inflation [2],” April 12).

She’s mistaken. Inflation is not caused by an expansion of the workforce. Yes, the money that women earn is spent, and this additional spending would indeed push prices up if the amount of goods and services available for sale were to remain unchanged. But women entering the workforce earn for their households additional money to spend precisely by producing and making additional goods and services available for sale.

Indeed, because the value of what workers in the market produce for sale by their employers is worth at least as much as is the value of what workers are paid, we can be sure that additional monetary incomes paid, and spent, as the workforce expands are offset by additional outputs worth at least much as the additional spending.

Inflation is caused by the monetary authority’s creation of excess purchasing power; it is not caused by the market’s creation of additional output.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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