Rising Costs

Inflation and Its Misunderstood Causes
Most people understand inflation as "a general increase in the prices of goods and services in an economy." While this accurately describes what is perhaps the most visible symptom of the inflationary process, it misplaces the designations of cause and effect. This fundamental misunderstanding leads to flawed diagnoses of the problems we face as a society—and, worse, to catastrophic policy responses.
The average person, frustrated by the steady erosion of his standard of living, demands that policymakers "do something." Yet he rarely understands the true source of his distress. Misidentifying the cause of his suffering, he unwittingly calls for more of the very medicine that made him ill in the first place.

Inflation and Money:
Policymakers often share this flawed understanding. Instead of grasping the complex roots of price inflation, they adopt simplistic narratives that cater to populist sentiment and propose equally simplistic, crowd-pleasing solutions. When prices rise to levels that burden the average citizen, the political reflex is often to increase the supply of money to ease the load—without regard for the deeper mechanics of the economy.

Ludwig von Mises offered a sobering clarification: increases in the money supply do not raise all prices proportionally. New money enters the economy at specific points, affecting certain prices and incomes before others. This redistribution of wealth distorts incentives and reshuffles economic priorities in ways that are often harmful. Mises warned that naïve inflationism believes an abundance of money equals an abundance of wealth, ignoring the inevitable decline in purchasing power and the long-term disfigurement of economic signals.

A Thought Experiment:
Consider this: A billionaire enters a camp of 100 hungry, homeless individuals in an inner-city environment and hands out ten $10 bills to each person. For the sake of this experiment, imagine there is only one food source available—a single hot dog cart.

What happens next?
Will the relative value of a $10 bill rise or fall compared to a hot dog? How will the sudden increase in cash affect the supply-demand dynamics of hot dogs? In the short run, demand will surge. But what then? We deliberately leave many threads unexplored: What if the vendor raises prices in response to demand? What if the billionaire returns tomorrow with more cash? What happens if a second hot dog cart shows up? What if local supplies of hot dogs run short? Will the city step in to punish "price gouging" if prices double? These are the questions the experiment is meant to provoke.

Consequences
Mises did not focus on the pain of the individual consumer per se. His lens was broader, systemic. He saw that the "something" policymakers do in response to economic distress often worsens the very crisis it aims to solve.

He understood the futility of price controls and the dangers of money supply manipulation. Injecting more money into the economy benefits some groups at the direct expense of others. It fuels capital misallocation and leads to the depletion of real wealth—even as it temporarily masks the symptoms of decline.

In the short term, cash infusions feel wonderful—if you're one of the 100 recipients or the hot dog vendor. But when pursued as policy, they warp markets, send false signals about the need for increased production, and spark calls from the public and opportunistic politicians to "regulate big hot dog."

This, ultimately, is the issue we aim to examine: to foster a better understanding of the economic forces behind our individual struggles, and to advocate for solutions that address our macro-level realities—not just their symptoms.