Velocity

We have had some spirited debate about inflation here at TLRB. One concept that keeps arising is that you can’t have inflation without growth in the money supply. That is, prices are a function of dollars chasing goods. If the number of dollars grows faster than the amount stuff to buy with them, then prices rise. In a recent post, a commenter took me to task (which everyone is welcome to do) for saying “generally speaking, growing demand increases upward price pressures.” I didn’t respond in full because the length of the response is worthy of a post in itself, so here it is.