In the example there are no debts. Savings in money terms are the dollars held, therefore the savings rate is unchanged. Savings in corn or cattle are unaffected by the change in money quantity.
Prices change based on the law of supply and demand.
Consider Bernanke’s recent comments about the control the Fed has over the economy.
“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”
(Ben Bernanke, “Deflation: Making Sure ‘It’ Doesn’t Happen Here” [Remarks before the National Economists Club, Washington, D.C., 21 November 2002])
The law of supply and demand is based on the selfishness assumption. Yes there is an argument that even upward-sloping demand curves will eventually slope downwards, but I can always find some margin or theoretical example for which it’s not true over some interval.
Why would the law of supply and demand not rest on marginal utility, rather than selfishness? Just because I have a selfish desire doesn’t mean that I can satisfy the desire. Utility and means mix together with self interest to render choices regarding use of scarce resources.
Prices have to change as well. The prediction that producers will change their prices is based on the selfishness assumption.
Nominal debts and nominal savings both decrease.
In the example there are no debts. Savings in money terms are the dollars held, therefore the savings rate is unchanged. Savings in corn or cattle are unaffected by the change in money quantity.
Prices change based on the law of supply and demand.
Consider Bernanke’s recent comments about the control the Fed has over the economy.
“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”
(Ben Bernanke, “Deflation: Making Sure ‘It’ Doesn’t Happen Here” [Remarks before the National Economists Club, Washington, D.C., 21 November 2002])
The law of supply and demand is based on the selfishness assumption. Yes there is an argument that even upward-sloping demand curves will eventually slope downwards, but I can always find some margin or theoretical example for which it’s not true over some interval.
Why would the law of supply and demand not rest on marginal utility, rather than selfishness? Just because I have a selfish desire doesn’t mean that I can satisfy the desire. Utility and means mix together with self interest to render choices regarding use of scarce resources.