What is the reason for the high inflation we are currently experiencing? The entrepreneur Frank Thelen discussed this with the journalist Ulrike Herrmann on Thursday evening at “Markus Lanz”. Thelen saw the ECB’s expansive money printing policy as the main reason for the rising prices. The “taz” editor Herrmann countered this and described the exploding energy costs due to the Ukraine war and disrupted supply chains from China as the main drivers of inflation.
In the course of the verbal exchange of blows, both sides gave nothing away, and Ulrike Hermann even got personal: “If you are an entrepreneur and invest on the basis of a false monetary theory, then I see a problem there. It does not surprise me that you have already been broke several times.” , the journalist threw at her opponent.
He spoke again on Twitter and confirmed his thesis. “It shocked me how many people are unaware of the connection between the money supply and inflation,” Thelen wrote on Friday. “Of course, less gas and lockdowns in China are also driving prices up, but more money makes it worse.”
The core of the dispute is the question of whether the monetary theory of the American scientist Milton Friedman (1912-2006) is still relevant or not. Ulrike Hermann claimed in the program that Friedman was “refuted”, while Thelen argued on the basis of Friedman.
In a detailed thread on Twitter, the economist Florian Kern took a position on the question. “The thesis that more central bank money leads to inflation comes from the quantity theory of money. Milton Friedman, who did not invent it (that was I. Fisher), but is most closely associated with it, later distanced himself from it”, he writes.
Kern posts some hints and links about the scientific state of the debate and then summarizes: “The core fallacy of Thelen is to believe that prices work like balloons and rise when you inflate them with money.”
Kern is particularly surprised by Thelen’s demand that the central banks should reduce the money supply in view of rising inflation but not raise interest rates. “Rising interest rates lead to less demand and less inflation,” explains the economist. “Reducing the money supply and maintaining interest rates, as Thelen suggests, is therefore not possible in the model.”
His conclusion: “Prices are created on free markets through the interplay of supply and demand. Central banks influence demand through interest rates, parliaments through fiscal policy and collective bargaining parties through wage agreements. The money supply is irrelevant.”
Ultimately, Florian Kern sides with Ulrike Herrmann in terms of content. However, with a small restriction. As far as the style of the debate is concerned, however, he also has a few words to say to the journalist: “Going bankrupt is not necessarily a sign of personal failure and I would personally like a little more start-up culture.”
Sources used: twitter.com/frank_thelen, twitter.com/FlorianMKern
