A widely circulated quote from the late economist Walter E. Williams asserts a fundamental distinction between the cause and effect of inflation, stating, > "Increases in money supply are what constitute inflation, and a general rise in prices is the symptom." This perspective, often shared across social media platforms by accounts like "Thomas Sowell Quotes," underscores a core tenet of monetarist economic theory.
Williams, a distinguished professor of economics at George Mason University until his passing in 2020, consistently argued that inflation is primarily a monetary phenomenon. His view aligns closely with Nobel laureate Milton Friedman's famous dictum that "inflation is always and everywhere a monetary phenomenon." This theory posits that a sustained increase in the general price level occurs when the quantity of money in an economy grows faster than the output of goods and services.
According to Williams, the responsibility for inflation lies squarely with the entities controlling the money supply, typically central banks and governments. He frequently criticized politicians for deflecting blame, suggesting they often attribute rising prices to factors like "greedy businessmen, rapacious unions or Arab sheiks." Williams viewed the expansion of the money supply as a "sneaky form of taxation," as it diminishes the purchasing power of existing money, effectively transferring wealth.
This economic framework emphasizes that while rising prices are the visible manifestation that consumers experience, they are a consequence, not the root cause, of inflation. Williams contended that understanding this distinction is crucial to implementing effective economic policies and preventing political misdirection regarding economic stability. His insights continue to be referenced in discussions about monetary policy and its impact on the economy.