today I have an economic topic and by that I do not mean my regular pub Am Sender. It is about the quantity equation that describes inflation. For the first time, the term must be explained: inflation is neither the price increase nor the increase in the money supply, but an imbalance in the quantity equation. This equation is: Y * P = M * U see inflation wiki. Y is the real production. P is the price. M is the money supply and U is the velocity of money. You can switch them to M = Y * P / U. It is assumed that U, the orbital velocity, is constant over longer periods of time. In the end, that is the case, but it is nonsense. Thus, society does not become rich, the ruble must roll, that is, the orbital speed must increase steadily.
Let us start, however, from a constant rate of circulation: then the money supply must always rise above the price level if we want to promote real production, and that is what we all want in times of technological progress, in times of scalability, at times when companies on the cost side do not care whether they produce a hundred or a hundred thousand products. Increasing real production promotes true prosperity. And as you can easily see with the three-rate, the increase in the money supply must necessarily be above the price increase.
Unfortunately, it has not been for years, and our economists are making us poor. The Federal Statistical Office publishes false statistics. This blemish must be removed in order to restore wealth.
Assuming that the velocity of circulation must also increase, a link is added to the quantity equation. Then you can see that the demand/supply principle no longer works at a time when we can scale when goods are no longer scarce. Because when the ruble rolls and the rate of circulation increases, demand increases. If you increase the price now, you choke off real production. So dear economic operators, if they are going well, the goods will no longer be expensive. This is only needed for goods that endanger the environment, but at most for those.
That is why I think it is good that the CDU and SPD want to strengthen domestic demand. This will increase the rate of circulation of money, and if the economy pulls along and prices do not increase, we can even keep the money supply constant and promote real production, that is, the production of goods that are good for all of us.
A negative example of inflation is the internet currency Bitcoin at the moment. Their value has risen 300-fold while the money supply remains the same, and thus the price of goods. Unfortunately, real production, that is, the goods traded through it, has not increased 300-fold, which is why it is highly inflationary and, as sorry as I am sorry for Mark Zuckerberg and the others, needs monetary reform.