Paul Kasriel is an Austrian economist who is the Director of Economic Researchat Northern Trust. In a recent commentary, he employs the Austrian insight that inflation distorts relative prices as well as the general price level:
Both Malpass and Friedman have too narrow and a flawed view of inflation. They see inflation as a rise in the prices of goods and services. Why restrict the price increases to just those of goods and services? Why not have a more expansive view of inflation to include price increases of assets? But what causes price increases across a broad spectrum of goods, services and assets? Central bank counterfeit credit.
General price increases are the symptom of inflation. What is being inflated is central bank credit – credit that is created figuratively out of thin air. Fed Governor Bernanke was referring to this counterfeit credit when he said that the Fed had the power of the press – the monetary printing press. If the Fed wants to control inflation, it has to control the growth in the financial assets on its balance sheet.
