Ken Fisher: What Really Causes Inflation
Ken Fisher argues that inflation is fundamentally caused by excess money creation, not by rising prices of individual goods like oil. While oil price increases may temporarily affect costs in the short term, they ultimately cause substitution effects rather than systemic inflation when the money supply remains stable.
Summary
Ken Fisher explains that while oil price increases might seem to drive inflation through higher production and transportation costs in the very short term (1-2 months), this represents a misunderstanding of what causes inflation long-term. He asserts that inflation is always and everywhere caused by excess money creation, not by rising prices of specific commodities. Fisher distinguishes between items with elastic demand (like bubble gum, which has many substitutes) and inelastic demand items (like oil and its derivatives, which are necessities). When oil prices rise, consumers cannot simply stop using gasoline or heating their homes, but instead engage in substitution—buying fewer luxury goods to compensate for higher energy costs. This reshuffling of consumption patterns brings down prices in other sectors rather than creating systemic inflation. The key insight is that if the money supply remains relatively stable, a single commodity's price increase redistributes spending rather than inflating the overall price basket. Fisher notes this substitution effect is occurring in real time as oil prices fluctuate.
Key Insights
- Fisher claims inflation is caused exclusively by excess money creation, always and everywhere, not by rising prices of individual commodities
- Fisher argues that when money supply stays stable, a single item's price increase has semi-predictable outcomes that don't necessarily increase overall inflation
- Fisher distinguishes that items with inelastic demand like oil have hard-to-reduce consumption even when prices rise significantly, unlike elastic goods like bubble gum
- Fisher contends that rising oil prices cause substitution effects where consumers reduce spending on luxury goods rather than creating systemic price inflation
- Fisher asserts that the reshifting of what consumers buy due to oil price increases changes relative prices but does not change overall inflation
Topics
Transcript
[0:00] If the price of oil goes up, wouldn't that feed into the cost of production and transportation of goods and thus lead to inflation? In the very short term, like a month or two, yes. In the longer term, no. Inflation is not caused by the price of oil going up or the price of anything else going up. Inflation is caused by excess money creation, always and everywhere. This notion that the price of X goes up, therefore that [0:30] pushes the basket of things we have up, misses the notion that if the quantity of money stays relatively stable, the price of one item going up, depending on what that item is, has a pretty semi-predictable outcome.…
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