A Los Angeles Lakers jersey worn by basketball legend Wilt Chamberlain is expected to sell for more than $4 million in a forthcoming Sotheby’s auction. Chamberlain wore the jersey in the fifth game of the 1972 NBA championship series between the Lakers and the New York Knicks, which was won by the Lakers. The previous record for Chamberlain memorabilia was set just a few months ago when another jersey worn by Wilt as a Philadelphia Warriors’ rookie sold for a mere $1.79 million. So what goes on here? Is the seller of the former jersey “greedier” than the seller of the latter jersey? Is this an instance of a new kind of inflation fueled purely by greed? Are sellers really able to arbitrarily raise prices in a single market or for the entire economy whenever their greed intensifies?
This “new inflation” called “greedflation” is an absurd explanation for the ongoing rise in prices that constitutes inflation. It rests on the assumption not simply that sellers are greedy—which we may grant—but that they inexplicably become progressively greedier over time. More importantly, it also leaves out of account the scarcity of the goods offered by sellers in relation to the preferences and money incomes of the buyers, that is, it ignores supply and demand. If Wilt’s Lakers’ jersey does sell for $4 million, it indicates that one and only one buyer was happily willing to pay this price because the value to him of this jersey exceeded the value of the $4 million or any other good or collection of goods he could purchase with the money. At any price lower than $4 million, there would have been more than one buyer and a “shortage” of the good, and the price would have been bid up to equalize demand to the single unit of supply. On the other hand, had the most eager bidder for the jersey had a maximum buying price of only $1 million, the seller—no matter how greedy—would not have been able to sell it for one penny more.
The point is that, like Wilt’s jersey, all goods are in fixed and limited supply at any moment in time and thus the same principle that determines an auction price, the law of supply and demand, applies to all the goods in the economy. In the case of consumer’s goods, the price of automobiles, oranges, tablet computers or any thing at all will be bid up to, but not higher than, the price at which the entire supply in existence is purchased by the most eager consumers, with the only units left unsold on retailers’ shelves or on dealers’ lots being those that the seller voluntarily withholds because he anticipates more eager buyers will show up bidding higher prices at tomorrow’s “auction.”
If not increasing greediness, then what has caused the rapid inflation of consumer prices that we have experienced in the U.S. up until recently? The answer once again lies in the law of supply and demand. In the aftermath of the COVID lockdowns, consumers generally were in a position to happily bid higher prices for most consumer goods because their money incomes had been inflated and the extra dollars now had a lower value relative to goods. And this had occurred because the Fed as the monopoly issuer of bank reserves and currency had greatly expanded the amount of money in consumers’ pockets and bank deposits to obscure the effects of the lockdowns and stay-at-home mandates. From February 2020 through April 2022 the Fed pumped a mind-boggling 6.5 trillion new dollars into the economy, increasing the money supply by a whopping 42 percent. Like an increase in the supply of all other goods and services, this explosive increase of the supply of money caused the “price” of money in terms of its purchasing power over goods to plummet or, in other words, for consumer prices to shoot upward. In the absence of the Fed’s reckless inflation of consumers’ money incomes, even the greediest sellers would have been unable to increase their prices.