In this article by Frank Shostak, I think he’s made a bit of a mistake. It may be that I’m missing some subtle point, but I really do think I’m on to something here.
Frank argues that inflation can only affect some goods because any additional spending on, say, oil, must be counterbalanced by reduced spending in other sectors.
I argue two points:
- Individuals can decide to reduce their cash balances, which can bid up the prices of real factors.
- Those expecting high inflation (group B) can buy all kinds of assets from those not expecting high inflation (group A).
Based on these two points, it does indeed seem possible for there to be a general rise in prices due to differences in expectations. Basically, the velocity of money becomes inhomogeneous between groups A and B, resulting in dollars (net) going to group A and real goods and non-dollar assets going to group B.
As long as group A holds a wide variety of goods, the price increases will appear roughly uniform over all sectors, due to the bidding up by group B.
I also refer to this section of Human Action, in which Mises describes the crack-up boom. Mises notes that velocity can increase as people try to escape into real goods.
Also referenced are the current money supply and GDP numbers, mostly to show that these two numbers are of about the same order of magnitude.