While reading "The Case for Legalizing Capitalism" by Kel Kelly, I stumbled upon a claim, which I interpret as "it's impossible for all prices in an economy to grow without monetary base growing".
I've re-read pages around page 130 several times, but I still do not see any sound explanation of this.
Is this a known theorem that price inflation cannot happen without monetary inflation (assuming no catastrophes or other decreases in overall productivity)?
I said "increase in transacted money", not "increase transactions" (whatever the latter means). Keep the same flow of goods, increase the flow of money (by decreasing cash holdings, as Esuric pointed out). Presto, same goods exchanged for more money means higher prices.
You mean a decrease in savings? Yes, in that case prices will rise. But its because the preference of the people have changed. I though we were assuming that the preference of the people was not changing.
And what does this have to do with the velocity of money?
You mean a decrease in savings?
Now that you mention it, I think I agreed with Esuric too early. Money is always in cash holdings, so no matter how quickly it goes around, the cash holdings do not need to decrease... I am back to square one :(
I thought it's obvious - the same flow of goods (and services, of course) is matched by a greater flow of money if velocity is higher - thus meaning higher prices. Now, the main question I still cannot wrap my head around is what determines prices (or velocity), as it looks like the same preferences (including demand for money) can lead to different prices/velocity...