Are High Food Prices Due to the Fed?
By David Henderson
On Judge Napolitano’s “Freedom Watch” on March 25, Austrian economist Bob Murphy claimed that the unrest in the Middle East was due to rising food prices which in turn are due to the Fed printing money. I’m not sure about the rising food price/political unrest issue–that could well be true. But I’m pretty sure that the Fed printing money/rising food prices link is weak. When the Fed prints money, that raises the dollar prices of goods. But why would it raise the prices to people in the Middle East. All other things equal, the dollar would adjust downward and the prices of food to people in the Middle East would stay the same.
And I’m especially surprised to see an Austrian economist make this argument because isn’t one of the main things they offer to business cycle theory their insight that where the money enters the system matters? In other words, there are Cantillon effects from printing money. If the Fed increases the money supply by buying bonds, then you would expect bond prices to rise. It’s a long stretch to get from that to food prices.
If you want to account for changes in food prices, you should look to the demand and supply of food. So Bob would need to explain why printing U.S. dollars causes the demand for food to rise. I can see some spillover, but why would food prices rise more than other prices that closer in the chain to bond prices? Bob?