Senator Rand Paul published an op-ed on Business Insider this past Sunday attacking the easy money policy of the Bernanke-Yellen Federal Reserve and continuing his call for a full audit of the central bank. Along with criticizing Senator Ted Cruz’s recent endorsement of the view that the Fed was guilty of being too tight with monetary policy during the financial crisis, Senator Paul demonstrates a sound Austrian understanding of how an expansion of the money supply benefits those who first receive the new funds at the expense of everyone else:
The reason for this is simple: big banks, corporations, and government entities receive the Fed’s newly-created money long before anyone else, and they bid up the prices of goods before the rest of us can get to purchasing them.
The side effect of this uneven distribution of money is painfully apparent to many at the grocery store. Over the past 15 years, the price of white bread has increased by over 50 percent, while the price of eggs has more than doubled.
Last June, Carmen Elena Dorobăț made a similar point connecting monetary policy to growing income inequality:
Money is not neutral, either in the short run or in the long run, because there is no separation between the structure of prices in an economy and the value of the monetary unit. They are two sides of the same coin. Easy money ripples through the structure of prices gradually and unevenly, with prices rising at different times and to different extents, and during this sequential process, those who receive the money first are benefited at the expense of those who receive the money last. Were it not for technological progress or globalization, this inequality would likely be much higher. Most importantly, these changes in the social distribution of wealth are never made up for, especially not by the aggregate “boon” of job creation or fiscal redistribution. These further redistributions only compound the initial shifts in wealth, but can never compensate them. Last but not least, therefore, if inequality is to be of any concern to any kind of policy, it is monetary policy.
Related posts:
- The Notion of Neutral Money by Ludwig von Mises
- Did “Tight” Fed Policy Cause the Financial Crisis? By Robert Murphy
- The Problem With “Rules-Based” Monetary Policy by Tommy Behnke
