As is often the case, I am thinking again about cost-push inflation.
In my preliminary notes I have been describing "cost pressure" as the source
of the price increase. But I was always confused about "pressure" and "force" and which is which. So I'm looking for advice.
Seems to me that something causes prices to increase. I think the thing that causes the change in prices
is a "force" and the response of prices is a measure of the "pressure"
transferred from the force. This is probably all silly except in special
cases, but let's pretend I'm dealing with special cases.
Thoughts?
2 comments:
Pressure is force per area. So, maybe, to use an example from my youth: if you were to make a hot tub in the back of a pickup truck, there are a few things that can go wrong. You might break the truck if the weight of the water is too high -- that problem is about the force. But you might also spring a leak if the tape you tried to use to seal the cracks isn't strong enough to hold the water in. That problem is about pressure.
I don't know if that helps!
I guess it is probably a kind of pressure, since what it's pushing against matters. If the money supply is spread out against more output or GDP or something, then it may not cause any leaks, even though the force is quite high.
Thanks Jerry.
I caught myself in the middle of using the term "cost pressure" and had to stop to see if that was what I meant. I like your image of inflation as "leaks" in the pipes of our economy. That helps. And inflation as the pressure resulting from some force; Hazlitt and Friedman and Hayek would say "the quantity of money" is the force.
Bill Phillips (of "Phillips curve" fame) created a hydraulic model of the economy, years back. The water represented money.
https://en.wikipedia.org/wiki/MONIAC
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