Tuesday, July 08, 2008

Comment on Belmont Club, 07/08/08 "Money, money money"

If you can not spend your money on rationed goods then you will have an incentive to divert your spending to non-rationed goods. This results in inflationary pressures as spending is increased on a small subset of goods. It will also induce the creation of inefficient after markets where people trade the non-rationed goods for the limited supply of legally distributed rationed goods. Also the presence of available but not legally purchasable goods in the rationed category will induce the creation of a black market and general lawlessness. Both of these inefficient illegal market activities will tend to increase the price of the rationed goods above their free market level. Therefor we can see that this scheme will be inflationary across all goods both rationed and non-rationed as well as contributing to a general breakdown of respect for the lawful market. The diversion of some assets to savings should have a small compensating effect.

Jul 8, 2008 - 11:56 am

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