Ask Prof Wolff LIVE: Interest Rates Hurt the Same People Inflation Hurts

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An audience member of Ask Prof Wolff LIVE asks: "If inflation is a result of employers increasing prices to make higher profits, how does the Fed connect the interest rate as a way to directly control inflation?"

Prof Wolff answered this question during a live Ask Prof Wolff event.

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Showing 1 comment

  • Edward Dodson
    commented 2022-12-21 13:45:28 -0500
    What has most to do with inflation is something few economists seem to understand: every increase in the price of land contributes to overall inflation in a major way. As land prices climb, this leads to rising rental charges for apartments and rising prices charged for a residential property. We do not think it strange that the price of a residential property is increasing every year even though a housing unit is a depreciating asset, the same as an automobile, or computer, or refrigerator. We could essentially tame inflation if we tame the land markets, removing the potential to profit by speculating in land or allowing owners of land to hold it unimproved years or even decades. The best anti-inflation public policy is twofold: (1) eliminate the property taxation of housing units; and (2) impose an annual tax on all types of land equal to the potential annual rental value of whatever land is held.

    Ricardo’s law of rent tells us that the public capture of rent leaves nothing in the form of an income stream associated with owning nature to be capitalized into a asking price.

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