Why Central Bankers Should Not Tinker with Aggregate Prices

6637

Frank Hollenbeck writes in today’s Mises Daily:

In other words, a little inflation is good for some economists because it allows entrepreneurs who made bad decisions, today and probably tomorrow, to see another day. It is surprising to see free-market economists support such logic, however. Capitalism is a system of profits and losses where entrepreneurs who survive are those best able to meet society’s needs. Losses are actually more important than profits since they prune out those who do not serve consumers as well, allowing resources to be channeled to where they are most needed. The movement of prices relative to each other in an economy can doom some business owners, but relative prices, and not aggregate prices, are a key to understanding the economy.

Comments are closed.