Lets think that through and correct me, please:
The Central Bank gives out money. The Nation and The Banks take credit for an interest rate. Both then push that money further into the economy. That creates Money Streams. The Nation will pay wages, maintenance, interests, subsidiaries and investments. Those are notoriously non-profitable.
Banks give out credit to lenders. The problem here is that the Lender needs securities. In a economy and society like Argentina in which a very large stake of the society is poor that means they are excluded from receiving money.
No one gets a Credit, factually, for a business plan that theoretically shows profits, but only based on his already owned values.
This Oxymoron, Banks having the duty to push money into society and Nations failing to find profitable investments, traps nations like Argentina in a poverty trap in which Supermarkets will lack Milk, due to price fixings that turn producing Milk unprofitable, yet farmers and poor having milk by their neighbor or own cows exchanging the milk for no money but other goods or services.
That way, in nations under a agriculture positive climate, unlike Somalia, the poor don't starve, but are as trapped in poverty as in agriculturally difficult regions as in many African regions.
In conclusion is there the statistical connection between amount of money and inflation by a lack of understanding and controlling Money Streams only statistical, fitting as statistical averages inherently do only a fraction or even none.
Here is a corrected version of your argument.
### 1. The basic relationship is not just “amount of money”
The standard framework is:
where:
- M = money supply
- V = velocity, how quickly money changes hands
- P = price level
- Y = real output
So if \(M\) rises while \(Y\) is stagnant, prices tend to rise—unless velocity falls. In Argentina, velocity often rises because people try to get rid of pesos quickly before they lose value. That makes a given money supply even more inflationary.
So the relationship is not merely “more money = higher prices.” It is:
> More money relative to the demand to hold money and relative to real output → falling purchasing power of money.
That fall can show up as higher prices, a weaker exchange rate, shortages, or black-market premiums.
### 2. You are describing something real: Cantillon effects
You say the new money enters through specific streams—government spending, bank credit, subsidies, wages. That is correct and important.
This is called the **Cantillon effect**: new money enters the economy at specific points, so it changes relative prices and redistributes wealth. The first recipients—government contractors, banks, subsidized industries—can spend before prices adjust. The poor, who receive the new money late or not at all, face higher prices without higher income.
But that does not refute inflation. It explains why inflation is uneven and socially destructive. It is still inflation.
Philipp Bagus, as an Austrian economist, would almost certainly emphasize these Cantillon effects himself. He would not say the money–price link is just a statistical artifact. He would say the new money distorts the structure of production and redistributes wealth, while the overall purchasing power of money still falls.
### 3. “Non-profitable” government spending can still be inflationary
You say government spending on wages, maintenance, interest, subsidies, and investments is “notoriously non-profitable.” That may be true in a narrow market sense, but it does not make it non-inflationary.
If the central bank finances a fiscal deficit, the government is spending new money into the economy. That creates demand. If that spending does not increase real production, the result is more money chasing the same or fewer goods.
In Argentina, the central bank has often financed government deficits because the government cannot borrow enough from markets. That is called **fiscal dominance**. It is a major cause of Argentina’s chronic inflation. The problem is not that banks require collateral from the poor; the problem is that the government uses the central bank to cover its deficits.
### 4. Banks requiring collateral is a real problem, but it is not the main inflation mechanism
You are right that in a poor economy, many people cannot get credit because they lack collateral. That is a serious problem of financial exclusion and weak property rights.
But the poor do not need to receive the new money for inflation to hurt them. In fact, because they receive it last or not at all, they suffer the most. The new money still bids up food, rent, and other goods they need.
Also, bank credit is only one channel. In Argentina, government spending financed by the central bank is often larger and more inflationary than private bank lending.
### 5. Price controls and shortages do not disprove inflation; they hide it
Your milk example is very good. If the government fixes milk prices below the cost of production, formal supermarkets run out of milk. Farmers and neighbors then barter or trade informally.
This is not evidence that money is irrelevant. It is evidence of **repressed inflation**. The monetary pressure is still there, but price controls prevent it from showing up in the official price index. Instead, it appears as:
- shortages,
- black-market prices,
- barter,
- a falling parallel exchange rate,
- people fleeing the peso for goods.
Official inflation statistics may understate true inflation in such conditions. So the statistical connection can look weaker than it really is, but that is a measurement problem, not a refutation of the theory.
### 6. “Only statistical” is too strong
All macroeconomic statements are averages. Saying “money growth causes inflation” does not mean every individual receives new money or that every price rises equally. It is an aggregate statement.
An analogy: saying “the average temperature in Germany in August is 20°C” does not describe every town on every day, but it is still true and useful. Likewise, the money–price relationship is an aggregate truth, not a claim about every transaction.
Hyperinflations—Weimar Germany, Zimbabwe, Venezuela, Argentina in past episodes—show that when money creation becomes extreme, the price level eventually explodes. The timing and distribution depend on institutions, expectations, velocity, and price controls, but the causal direction is real.
### 7. A corrected version of your model
So a more complete picture of Argentina would be:
1. The central bank creates money to finance government deficits.
2. The government spends that money on wages, transfers, subsidies, and debt service.
3. Recipients spend it, creating demand.
4. Because real output is weak—due to price controls, taxes, uncertainty, and low investment—the extra demand bids up prices.
5. Price controls hide some of this inflation as shortages and barter.
6. Banks allocate credit to those with collateral, fueling asset prices and consumption by the already wealthy, not broad-based production.
7. The poor are excluded from formal credit and formal markets, so they suffer inflation without receiving the new money first.
8. People expect inflation, so they spend pesos quickly, raising velocity and worsening price pressures.
9. The result is stagflation and a poverty trap.
### Bottom line
You are right that the schoolbook version is incomplete. But the correction is not that the money–inflation link is “only statistical.” The correction is that money creation causes inflation through specific streams, with unequal distributional effects, and that price controls and barter can hide the inflation rather than eliminate it.
Argentina’s problem is not a statistical illusion. It is a monetary-fiscal regime that creates money to finance unproductive spending, combined with price controls and weak institutions that distort how the inflation appears.
The only thing that happens by the price stability driven politics is that the decision making stake of the society loosed oversight. They believe there is no milk, while poor farmers keep milking their cows. Supermarkets Vs Community.
That means that inflation is a true problem for the Supermarket people, while the real problem for the Community people is being stuck their economic level, by blindness of the decision makers, yet having inflation absent in their lives. They keep drinking their own milk as long their cows have babies. Latterly, the situation goes on for generations.
## 1. The interest problem is real, but it does not make inflation “only statistical”
You say:
> one Bank gives out money against an interest rate, but no one is providing the absolute amount of money that interest rate represents from the market.
This is a known structural critique of debt-based money. If a bank creates 100 in new deposits by making a loan, but the borrower must repay 110, then the extra 10 must come from somewhere:
- someone else’s income from spending,
- government transfers,
- another new loan,
- the bank’s own spending or profits.
In a closed system with no new money creation, it is impossible for everyone to repay their debts plus interest simultaneously. So the system has a built-in bias toward expansion, refinancing, or crisis.
That is true.
But it does not mean inflation is “only statistical.” It means the system needs continuous new money creation to service debts. If that new money goes into productive investment, output rises and inflation can stay low. If it goes into unproductive spending, inflation rises.
So the money–inflation link is real, but it works through the quality and direction of spending.
## 2. Profitability matters—but price stability is not irrelevant
You say spending has to be profitable to a degree that spending for price stability is irrelevant.
Here I would partly agree and partly correct.
In the equation:
if M grows and Y grows at the same rate, then \(P\) does not have to rise. So yes, productive spending can absorb new money without causing inflation.
But that does not make price stability irrelevant. It makes price stability a test of whether spending is productive.
- Low inflation = money creation is roughly matched by real production.
- High inflation = money creation is outrunning real production.
So inflation is not a separate, artificial problem. It is a signal that the system is creating more money than it is creating real goods and services.
In Argentina, much government spending is not profitable in the narrow sense you describe. It goes to wages, subsidies, transfers, and debt service. That spending does create demand, but it does not create enough real output. So the result is inflation.
## 3. Your milk example describes a dual economy, not the absence of inflation
You are describing something real:
- In the formal economy, there are supermarkets, price controls, shortages, and inflation.
- In the informal economy, poor farmers milk their own cows, barter, and live partly outside the monetary system.
This is a classic dual economy. The official statistics may miss barter, own-consumption, and informal exchange. So official inflation can understate the true erosion of purchasing power.
But it is not true that inflation is absent for the poor.
A farmer who drinks his own milk and barters cheese is insulated from supermarket milk prices. But he is still exposed when he buys:
- diesel,
- medicine,
- school supplies,
- clothing,
- tools,
- transport,
- taxes.
If he is fully self-sufficient, then he avoids monetary inflation. But he also avoids the gains from specialization, capital accumulation, and access to credit. That is not freedom from inflation. That is poverty.
So the community people are not living outside inflation. They are living outside the formal monetary economy—and that is exactly why they remain trapped.
## 4. Supermarkets vs. community is not an inflation illusion
You say inflation is a problem for supermarket people, while the real problem for community people is being stuck at their economic level.
That is partly right, but the conclusion is not that inflation is only statistical.
The problem is that Argentina has two economies:
- a formal peso economy suffering inflation and shortages,
- an informal subsistence economy suffering stagnation.
Policymakers look at supermarket shelves and official prices, so they miss the informal economy. That blindness is real.
But the informal economy is not doing well. It is surviving. The farmer who drinks his own milk for generations is not accumulating capital, not investing in productivity, not entering the division of labor on better terms. The fact that he does not see inflation in his daily life does not mean inflation is irrelevant. It means he is excluded from the formal economy.
## 5. Price stability politics can create blindness—but price controls are not price stability
If by “price stability driven politics” you mean attempts to suppress prices through controls, subsidies, or exchange-rate manipulation, then yes, those policies blind decision-makers.
They believe there is no milk because the supermarket shelf is empty, while the farmer still has milk outside the formal market.
But that is not price stability. That is price suppression.
True price stability would require:
- ending central bank financing of fiscal deficits,
- allowing relative prices to adjust,
- removing price controls,
- restoring a stable monetary framework.
In Argentina, the policy is often the opposite: the central bank creates money to finance the government, and the government tries to hide the resulting inflation with price controls. That creates the dual economy you describe.
## 6. The corrected picture
So a more complete model of Argentina would look like this:
1. The central bank creates money to finance government deficits.
2. That money enters through wages, subsidies, transfers, and debt service.
3. Much of that spending is unproductive, so real output does not rise enough.
4. The new money bids up prices in the formal economy.
5. Price controls hide some of the inflation as shortages.
6. Banks channel credit to those with collateral, not to the poor.
7. The poor survive partly outside the formal monetary economy.
8. Official statistics miss much of this informal activity.
9. Policymakers focus on supermarket shelves, not on the informal economy.
10. The result is stagflation in the formal economy and stagnation in the informal economy.
That is not “only statistical.” It is a structural monetary-fiscal failure.
## Bottom line
Your intuition is strong: the simple “more money → higher prices” story is incomplete. The money–inflation link works through specific channels, institutions, and relative prices.
But the correction is not that inflation is only statistical. The correction is that inflation is a symptom of a deeper problem: a monetary system that creates money for unproductive spending, a credit system that excludes the poor, and a policy framework that hides shortages instead of fixing productivity.
It doesn't.
Now we face a dilemma, because an Old School Investor looking to put money where it creates profit would now stop borrowing to those with a proven track record of failing to create profit, which is the nation and in many parts also rich people financing lavish spendings over hundreds of farmers.
That does no Bank do.
Instead we are back to the statistics, which are irrelevant when you cook your cows milk for you and your neighbor in return of some tomatoes. That's my point. The poor, they matter, also for the inflation based politics.
The farmer drinking his own milk is not proof that inflation is absent. He is proof that the formal economy has failed to integrate him. That is the real tragedy.
You are now describing the real problem. Let me state it clearly because I think your point is sharper than the earlier version.
## 1. Banks are not “old-school investors”
You are right. An old-school investor lends money where it has the best chance of generating real profit. That would mean:
- Lending to a farmer with a viable plan.
- Lending to a small producer who can increase output.
- Refusing to lend to a government that repeatedly destroys value.
- Refusing to finance rich insiders who use the money for consumption or asset speculation.
But the modern banking system does not work that way.
Banks lend against collateral, political connection, and liquidity. Government bonds are considered safe because the central bank can always create money to redeem them. A farmer’s business plan is considered risky because it cannot be seized easily and because the farmer has no political weight.
So the banking system systematically channels money toward the unproductive state and wealthy insiders, and away from the productive poor.
That is not a statistical illusion. That is a political-economic distortion.
## 2. The farmer’s business plan would win in a real market
You said:
> If it goes into unproductive spending, inflation rises. Then the farmer’s business plan would win over the rich man’s ownership value. It doesn’t.
Correct.
In a functioning capital market, money would flow to projects that create real goods and services. The farmer who increases milk production would be rewarded. The rich man who borrows for luxury consumption would have to pay a high interest rate or be refused.
But the central bank and the government distort the market by guaranteeing government borrowing and by making unproductive lending too attractive. The rich man’s ownership value—land, existing assets, political ties—beats the farmer’s future output, not because the rich man is more productive, but because the system is rigged in his favor.
That is the core problem.
## 3. Inflation is not “only statistical”—it is the market’s punishment for that misallocation
When money is created to finance unproductive spending, the real resources needed to repay that money do not exist. So prices rise. That is not a statistical artifact. It is the market adjusting the value of money downward because the claims created against real goods exceed the goods actually produced.
The fact that banks do not lend to farmers does not mean inflation is unreal. It means the money is being misdirected, and inflation is the symptom.
## 4. The poor do not escape inflation—they escape the formal price index
You say:
> The poor keep drinking their own milk as long their cows have babies.
Yes. But that is not freedom from inflation. That is exclusion from the formal monetary economy.
The farmer who barters milk for tomatoes avoids supermarket prices. But he still needs fuel, medicine, tools, transport, school fees, and many goods he cannot produce himself. When he buys those, he pays inflated prices.
More importantly, the fact that he is outside the formal credit system means he cannot invest, cannot expand, cannot enter the division of labor. He is not living in a stable economy. He is trapped in subsistence.
Inflation is still there. It is just not measured in his barter transactions.
## 5. The blindness of decision-makers is real, but it is not proof that inflation is only statistical
You are right that policymakers look at supermarket shelves and official price statistics, and they miss the informal economy.
They see empty supermarkets and say: “There is no milk.” Meanwhile, poor farmers are milking their cows and exchanging milk for tomatoes. The policymakers then think the problem is only about formal supply, so they impose price controls or import policies—while the real problem is that the monetary-fiscal system has destroyed the incentive to produce formally.
But that blindness does not mean inflation is absent. It means the official statistics are incomplete.
## 6. The poor matter—and they are the ones who ultimately pay
The poor do not receive the newly created money first. They do not have assets that rise with inflation. They cannot borrow against future income. They are the residual absorbers of monetary disorder.
So the poor are not outside the inflation problem. They are the main victims of it.
But they suffer in ways that official statistics do not capture:
- They are forced into barter and subsistence.
- They lose access to formal credit.
- They cannot build capital.
- They remain poor for generations.
That is not evidence that inflation is irrelevant. It is evidence that the inflation is so destructive that it pushes people out of the formal economy entirely.
## Bottom line
Your argument is no longer that inflation is “only statistical.” Your argument is that the banking system channels money to unproductive insiders instead of productive outsiders, and that official statistics miss the resulting informal survival economy.
That is true.
But the solution is not to dismiss inflation as a statistical artifact. The solution is to recognize that inflation is a symptom of a monetary system that finances unproductive spending and excludes productive people.
The farmer’s business plan should win. It does not, because the system is designed to favor the rich man’s existing ownership over the farmer’s future output. That is a political failure, not a statistical one.
The poor matter—but they matter precisely because they pay the price of that failure, even when they are drinking their own milk.
