Classical inflation

Being a classical economist myself, I understand what the classicals meant when they said that public sector deficits lead to inflation. They meant that if a government ran a deficit, they would eventually be forced to inflate the money supply.

You’d have to go back to an economic text written in the 1930s at least. Once Keynesian economics became the fashion, since the very policy was of itself inflationary in the classical sense – and could in some circumstances lead to a rise in the price level (our modern definition of inflation) – there was an imperative to change the meaning of inflation among economists.

But what you see before your eyes is the very embodiment of classical theory. We now have central banks trying to save their mates in Treasury from having to finance the debts they racked up in the non-stimulatory stimulus. If they actually had to repay this debt at a market rate, we would all go bankrupt. Instead, they are thieving from the public to cover for their own incompetence.

The SMH this morning has a particularly absurd story, but it’s what they are trying to tell us: “Rate cut isn’t about money, it’s about jobs”. Well, the only jobs they are trying to save are the jobs of those Treasury incompetents who took us into the fiscal deficit adventure we are now in the midst of and will be for many years to come.

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