Birdnow's Aviary

July 31, 2026

Yes, Inflation is a Monetary Problem, not a Supply Problem

Timothy Birdnown

American Thinker really laid an egg with this one.

Here we have an economist making the Keynsian argument that inflation is not caused by an increase in the money supply.

The author tries to blame inflation in the seventies on the oil embargo leading to oil price shock and driving up inflation. Inflation is NOT merely rising prices from a temporary market fluctuation but a systemic growth in prices across the board and in no way can this "economist" make this case.

He argues:

"I never dreamed that my fellow economists would lock themselves into the groupthink that the money supply is the cause of inflation. It is not. A woman does not offer $4 for bread when the price is $3 simply because the money supply is large, or because the government spends too much. If there is a shortage of bread, she might offer more."

Shortages are caused primarily by demand outstripping supply and the prices not being allowed to rise - as we saw with wage and price controls.

A woman doesn't CHOOSE to spend more on a loaf of bread - she does because the price has gone up and she has to pay it or do without. Duh.

The price goes up because the value of a dollar has gone down and if she's paying four bucks for a three dollar loaf of bread it means the value of a dollar dropped 25% since there are now more dollars in the system.

In inflationary periods wages rise too but usually not as fast as inflation by and large. But they often can keep up, which is why inflation is so attractive to politicians - a stealth tax which is hidden and which can be blamed unjustly on corporations.

Here is a graph that clearly shows the rise in the money supply during the seventies tracking almost perfectly with the rise in inflation. It's not just the m2 supply of money but also the amount of economic growth (which high inflation eventually kills) and the national debt to GDP. The Federal Reserve often uses inflation of the money supply to stimulate growth. But then, being Keynsians, they then obsess over "overheating" the economy and often pull back on it.

The point is the money supply is the predominant driver of inflation no matter how many degrees this author possesses.

We saw this during the Biden years; Bidenflation was a result of the Federal Reserve printing a lot of money to cover the cost of Covid and Biden's reckless spending. Nothing more.

Inflation spiked because of the gargantuan spending over the last twenty years. Obama spent huge amounts, then Trump with Covid, then Biden with even larger spending over Covid. Inflation was sure to follow; the Federal Reserve increased the money supply by gargatntuan amounts. See a graph of it here. It was at this very time inflation exploded. This chart shows M1. M2 grew at a rate of 26.9% in 2021 and only stopped growing as the election loomed in late 2023. See more here.

To further prove this author is a bit dim, he says this:

"Inflation is caused by the increased cost or shortage of usable goods. The main drivers of inflation are taxes and rising oil prices."

If that is so every time the tariff has been raised it should have resulted in inflation. Yet a walk down memory lane shows no such thing ever happened when tariffs were raised (and almost every President has done so at some point in their Presidency).

Again,, there is a difference between a temporary or specific price spike and inflation, something this fellow seems to not understand.

Yes, taxes can raise prices and yes, oil is certainly a systemic cost and drives up the costs of goods at times. But it is not the core cause of inflation. IF that were true then we should not have seen inflation rising steadily through the last twenty years when oil prices were fairly static.

In most cases oil prices climb AFTER inflation increases. For example, oil prices reached a record high in June of 2008, after the mortgage meltdown. In 2007 inflation was 4.1% by 2009 it was 2.70% so it declined despite a major oil price spike in 2008 (and 2008 saw practically no inflation at 0.10%). How can ths be if oil prices are the key to inflation? Inflation dropped under Obama while oil prices were rising.

A number of factors decide when prices rise - for instance the "velocity rate" aka how fast the money is moving, and the total economic growth. But in the end you can't cheat the reaper and an increase in the money supply can delay inflation but not stop it.

Oh, by the way, we've been lied to about the inflation rates for decades now. Why do we have an "affordability crisis" now when inflation is officially pretty low?

This guy is making Keynsian arguments.

Posted by: Timothy Birdnow at 08:56 AM | Comments (2) | Add Comment
Post contains 837 words, total size 6 kb.

1 A woman offers $4 for a loaf of bread because she has too much money and somebody else offered $3 for it. Doesn't matter how many loaves were available, it matters that she didn't care about the price because she had too much money.

Posted by: Bill H at July 31, 2026 09:22 AM (FRG6e)

2 In other words Bill she's a sucker! A fool and her money...

Posted by: Timothy Birdnow at July 31, 2026 12:22 PM (oflqW)

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