It is a basic fact of economics that price inflation is caused by excess monetary expansion. It is a fact in the same sense that the idea that the earth revolves around the sun is a fact, in that it is simply the only way to explain the data without reverting to massive distortions in order to save appearances.
In fact, the same man solved both problems: Nicholas Copernicus had a day job and it was not looking up at the stars: it was looking down at our earth-bound economy. Copernicus worked for his uncle in what we would now call economic development when he took up work on his heliocentric theory in his free time.
Copernicus identified what is known as the quantity theory of money, showing that it is government officials debasing currency through excess money creation which drove price increases. Not greedy merchants. Not debauched, impious consumers. Not lack of respect for the law. In fact, the law in the sense of the government is what lay behind price inflation. Copernicus discovered Gresham’s law before Gresham: the law that says people tend to hoard sound currencies at times when other currencies are being debased. It’s not the phenomenon of greedy speculators behind this principle; it is the phenomenon of greedy princes.
The alleged advances of the ‘new’ Keynesian economics were really a move backwards to pre-Copernican Aristotle, who never understood the effects and functions of the interest rate in a market system. Both geocentric and spender-vendor-centric models of astronomy and economics, respectively, depend on surface observations of effects and not on deeper exploration of cause and effect. I understand that it ‘looks like’ price hikes are caused by the people who sell goods and services, not by debasing Polish officials, in the same way that I understand that it looks like the sun goes around the earth. I also understand that in both cases, surface observation is in some sense ‘empirical’, but it is not really science.
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