Everything used to be nosebleed costly. Books used to be so expensive that there were more pastors and priests than there were bibles. The first window unit air conditioners in the 1930s cost anywhere from $10,000 to $50,000. The computer on which you're reading this opinion piece no doubt cost you a microscopic fraction of the $1m+ that IBM mainframes (sans internet, and realistically sans anything that computers have today) set buyers back in the 1960s.
In which case it’s odd that those interested in lower consumer prices focus so much of their energies on monetary policy. Figure that most of the modern economic religions “chart” and “graph” the various monetary aggregates (the Ms) and the odd notion of “money supply” as the alleged path to what they deem lower inflation. It’s kind of pointless considering the powerful impact markets have on money in circulation and the kind of money in circulation.
Think about Illinois. Dollars circulate abundantly in Chicago, IL, but are very scarce in Cairo, IL. Is this disparity planned by the governments, or the Federal Reserve? Not at all. Money in circulation, as in the amount of money in circulation, is production determined. Where there’s production there is always “money” necessary to move the production.
But wait, some will say, governments or central banks can “print” money and devalue it. They can, but if so, the money they print rapidly disappears from circulation. That’s why the dollar liquefies so much exchange in countries not the United States. It’s markets at work. Self-proclaimed free thinkers say “there’s no free market for money,” but in reality there’s an exacting, global market for money. Money “supplied” by governments that’s not trusted doesn’t much circulate, while trusted money does.
With trade it’s always and everywhere products for products underlying monetary exchanges, and the fact that it is ensures that trusted, non-inflationary money can generally be found wherever there’s economic activity. Producers won’t accept currencies that they can’t exchange for commensurate goods and services.
All of which brings to mind an excellent new study published at the Cato Institute by Joy Buchanan, an associate professor of quantitative analysis and economics at Samford University. Titled “Fast Fashion, Global Trade, and Sustainable Abundance,” Buchanan reminds this reader of a quip by the late P.J. O’Rourke: the arms race didn’t kill off the Iron Curtain countries, but Bulgarian blue jeans made behind the Iron Curtain did.
With production it’s not just that profit motives and incentives matter, it’s also about hands and machines. The simple truth is that the more hands and machines involved in the production of goods and services, the exponentially more plentiful and cheap are the goods and services. Put another way, Spanx products could never have been created in the old Soviet Union, but in countries economically integrated with the rest of the world, advances like Spanx are the norm.
Buchanan makes the crucial point that “Historically clothes have been very expensive. Thanks to globalization, almost everyone in the world now has abundant clothing in many styles.” Most definitely. And of arguably even greater importance, Buchanan shows how this integration of specialized individuals the world over makes it possible for low-wage workers to outfit themselves in fashionable clothes on the relative cheap in ways that low-wage workers from the past could never have imagined.
Contrary to populist narratives about “globalists” the world over exploiting the proverbial “little guy,” the happier truth is that globalization loves those with the least more passionately than it does any other economic subset. And if readers doubt this, they need only drive the poorest streets of any city anywhere in the world, only to watch what the people are doing when they’re not working: most are looking down at the supercomputers that fit in their pockets, and that provide them with staggering amounts of information for prices that continue to fall.
To be clear about the decline in the cost of everything, it’s not born of “monetary policy” as the members of the various economic sects want you to believe. The fastest path to cheaper everything is productivity that springs from global cooperation of man and machine.
It’s just a reminder that when politicians and pundits wring their hands about prices, their focus is way off. Far more than most will admit, currency policy takes care of itself, and with the speed of mouse clicks around the world. Falling prices are in reality a conseqence of freedom and integration, which should have the economic religionists wondering: was it monetary error that gave us what some deem “global inflation,” or was it the relative evisceration of global cooperation care of needless lockdowns. Joy Buchanan’s study would indicate the latter.
