Hi
First question here.
I'm reading this in a swedish book on inflation(non-austrian book):
This is my try to translate it into english: "Most of the price history up to the First World War can be considered as the net result of two counteracting forces: inflation, which stems from an increasing supply of money and deflation resulting from a rising demand for money. An exception is the inflation that occured in the wake of the Black Death, when about half of Europe's population died( 1348-1351). Then the aggregate demand for cash(money?) fell and the price level went up"
I don't really see how a change in population could result in inflation. Isn't it more likely that people producing goods died and therefore a decline in goods produced caused the rise in the price level?
I guess it's not the austrian theory but i would like to understand what they mean with the demand for cash fall and therefore prices went up.
seems reasonable that the black death did not alter the money supply, so observed upwards price changes were a function of declined production.
its easy to see why production would suffer, the plague disrupted the division of labour and shrank the extent of the market
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
"Then the aggregate demand for cash(money?) fell and the price level went up"
If people want less of a good relative to its supply, then the good has less market value, whether the good is corn or money. When the market value for corn declines, its price drops. When the market value for money declines, that is a kind of inflation, not to be confused with inflation by currency debasement.
In addition to having fewer people to demand the same quantity of money, you also have less productivity (less people to produce, but also less specialization, and other disruptions of capital structures). Both effects raise nominal prices--the first as a reflection of the market valuation of the relatively more abundant currency, the second as an actual increase in the cost of production.
In terms of quantity theory of money, <p> = MV/T, M is constant while both the population drop and productivity drop affect both T and V. T declines. V may increase, since the distribution of transactions shifts into higher price ranges, even as total transactions drop. That is, because of productivity declines, more money must be spent to do the same thing. This may outweigh the decline in the frequency at which people are doing that thing.
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