"What we're talking about is the price of goods, all goods, in terms of money. That has nothing to do with unemployment, except for the fact that you get fewer goods. And when you have more money and fewer goods, the amount of dollars per good goes up. It goes up because there are fewer goods and it goes up because there is more money"
- Arthur Laffer
About this Quote
Arthur Laffer addresses the relationship between money supply, the availability of goods, and the price level within an economy. He emphasizes that the fundamental mechanism driving prices is the interplay between the quantity of goods available and the amount of money in circulation. The focus here is on the price of goods measured in monetary terms, distinct from other wider issues such as unemployment, except to the extent that unemployment may reduce the production of goods.
When fewer goods are produced, perhaps due to reduced labor force participation or efficiency, there is less for consumers to buy. Simultaneously, if the amount of money available to consumers remains the same or increases, there is more currency chasing after a smaller pool of goods. The result of this mismatch is a rise in the price of each good, a phenomenon directly linked to basic supply and demand principles: scarcity increases value, and abundance decreases it.
Moreover, Laffer points out that higher prices for goods are not solely driven by a reduction in supply. They are amplified by an expansion in the money supply as well. When the amount of money in the economy grows – for example, through expansionary monetary policies or fiscal stimulus – the purchasing power of each individual unit of currency declines, provided that the number of goods doesn’t increase correspondingly. If this occurs contemporaneously with a decline in the output of goods, the effect on prices is intensified. Both forces—more money and fewer goods—contribute to inflation.
Laffer excludes unemployment as a direct driver of price levels, acknowledging it only in the context of its effect on the output of goods. His analysis reflects a classical economic perspective, centered on the idea that inflation arises when excessive money supply meets restricted goods supply, making monetary and production policies pivotal in managing price stability.
This quote is written / told by Arthur Laffer somewhere between August 14, 1940 and today. He was a famous Economist from USA.
The author also have 21 other quotes.