British Polymath John Hearn Professor of Economics Professor John Hearn
@jbhearn
https://x.com/jbhearn/status/1880278784500257059
A definitive proof that cost push inflation is a myth invented by mainstream economists and Central Bankers to hide their mistakes.Misinformation regarding inflation https://myprofessorjohnhearn.org/2025/01/17/the-cause-of-inflation-and-consideration-of-the-term-deflation/
January 17, 2025
The cause of inflation and consideration of the term deflation
We have shown that cost push inflation is a myth yet almost 100% of articles written about causes of the current inflation highlight and focus on costs of production and what they describe as supply side shocks such as the Ukraine/Russia war with particular reference to its effect on shortages of supply and prices. Another interesting point is that many of these articles are from authors linked to the Bank of England, Federal Reserve or European Central Bank as if they are trying to deflect attention away from the role of money in this process by focusing on costs and the supply side of the economy. To understand how all these articles can persuade intelligent people that cost push inflation exists and at the same time make no reference to the Central Bank`s role in managing inflation we need to return to the period of time after Keynes death when Keynesian economists were beginning to establish themselves in the corridors of power. At that time very little attention was given to money in Keynesian models and monetary policy was just there to accommodate the fiscal actions of government. The government through the Treasury manipulated aggregate demand and the Central Bank accommodated these policies with looser or tighter monetary policies. However once cost push inflation was recognised as the main or only cause of inflation the Keynesian economists at the Treasury seemed to always be arguing for bigger and smaller deficits to boost the economy through to their chosen full employment target. Over the last 80 years of manipulated budgets there have been less than 10 surpluses and 70+ deficits. It has been suggested that deficits are what politicians want to hear, but if Keynes “General Theory” was read through carefully you would actually expect a roughly equally number of deficits and surpluses and some balanced budgets. At tis point another interesting reminder from Keynes.
“We have the experience of many countries to demonstrate that unbalanced budgets are the initial cause of collapse”
This led to a line of reasoning which has currently been inherited by Modern Monetary Theory when it describes hyperinflations around the world and over time. It claims that there are a variety of causes of hyperinflation by country. This must be wrong if there is only one monetary cause of inflation which is an expansion of monetary demand faster than the rate of change of output. MMT make the mistake of confusing the cause of inflations with the cause of money printing. The cause of money printing has varied between countries, but the cause of inflation is always the same. This mistake is easily corrected by pointing out that if any or all of these identified causes did happen and the Central Bank did not respond by printing money then there would be no inflation or hyperinflation. This would then confirm a single cause of a rise in the average level of prices.
A further reason why misinformation about inflation and its cause occurs is time lags. In his 1970 Wincott Memorial Lecture Milton Friedman (1912-2006) set out important propositions that introduce the time lag:
“There is a consistent though not precise relation between the rate of growth of money and the rate of growth of nominal income”
“Today`s income growth depends on what has been happening to money in the past. What happens to money today affects what is going to happen to income in the future”
If we saw a diagram like this with the money supply increasing while inflation is falling and inflation falling while the money supply is increasing then we might be easily persuaded that there is no correlation between the growth in money and inflation giving support to those who criticise the monetary cause of inflation.