Ricardo, Wicksell, Hayek, Friedman all got it: Tariffs don't cause inflation

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5 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff once again visits recent inflation numbers and the media’s repeated attempts to link them to tariffs.

Ricardo's 1810 Bullion Debates.
The media should have checked this first

Last week we got a slightly elevated July consumer inflation report, up 2.7% year-over-year, and higher than in June and May.

And immediately the press blamed tariffs with headlines like:

” Inflation ticks higher as Trump's tariffs kick in.”

-Politico, August 12th

“Inflation remains elevated as Trump's tariffs take hold.”

-NPR, August 12th

“US wholesale prices jump in July as tariffs hit.”

-BBC, August 12th

Now the Economics Correspondent is generally no fan of tariffs, especially when other countries impose them unilaterally on the United States for decades. But whether you’re pro-tariff, anti-tariff, pro-free trade, pro-mercantilist, or pro-industrial policy, inflation is still a monetary phenomenon and not caused by tariffs (except under a rare set of conditions which we’ll see don’t apply here).

Milton Friedman famously said “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

That remains true, and to prove both Friedman right and the “blame Trump’s tariffs” press wrong, let’s take a look at what the media won't: the "monetary phenomenon" of the last year.

As we’ve already covered in previous articles Friedman’s license plate read:

mv=py

That is, money supply x monetary velocity = the general price level x economic output.

There’s nothing about "tariffs" in the formula.

So what happens if, unlike the media, we actually bother to look at the "m" in the equation of exchange: the money supply?

M2 from July 2024 to July 2025 rose by 4.8%, which is entirely within the purview of the Federal Reserve.

https://fred.stlouisfed.org/graph/?g=1LAKm

I'll repeat both numbers:

Prices rose 2.7%. 

The money supply rose 4.8%.

Since the Fed is in charge of monetary policy, since the Fed is tasked with meeting a 2% inflation target, and since the Fed boasts of its independence, then the Fed is far more guilty of the 2.7% inflation report than any alleged effect of tariffs.

For all that was required for the Fed to achieve its 2% year-over-year inflation target was to increase the money supply by a still-forceful 4.1% instead of the too-high 4.8%.

Why doesn’t the press mention this instead?

Part of it is Trump Derangement Syndrome. A bigger part of it is the much longer-standing ignorance of what the Fed actually does plus a tendency by the establishment—the media included—to rally around our central bank as some indispensable institution that bestows us with eternal economic salvation (hint: it's neither).

Now some more sophisticated people might say "Well the Fed has to offset real economic growth to keep prices stable, so of course it has to grow the money supply.”

OK fine. From 2Q24 to 2Q25 real GDP rose by 2%.

https://fred.stlouisfed.org/graph/?g=1LAKs

So if you print 4.8% more money chasing 2% more goods and services, the result is 2.7% inflation (1.048/1.02 = 1.0274), which is exactly the elevated inflation rate we got.

Thus, the original point remains: none of the latest inflation number can be attributed to non-monetary factors, including tariffs.

And again, the Fed printed money too fast. If it had simply printed 4.1% more money instead of 4.8% more money then year-over-year inflation in July, even with offsetting economic growth, would have been its dead on target at 2% (1.041/1.02 = 1.0206).

But then, say the sophisticated Fed apologists, to slow down the rate of monetary growth the Fed would have to raise interest rates which would be really bad, right?

Not when considering an even better solution they don’t mention. Namely, the Fed could have simply never lowered interest rates during the last five months of the Biden administration in the first place (September 2024 to January 2025). Had rates stayed where they had been for the previous year, a full 100 basis points higher, we wouldn't be looking at 2.7% CPI inflation today.

Inflation stood at 2.6% in October 2024 and 2.7% in November 2024. Given its dual mandate of full employment and a 2% inflation target (which the Correspondent believes is already too high), the Fed’s rate cuts made no sense in late 2024, just as cutting rates today with 2.7% inflation also makes no sense.

But then the press wouldn't have a Trump-linked scapegoat to headline.

To repeat: monetary policy is the purview of the Fed. The Fed is not only entrusted with it, Congress has granted it a coercive monopoly over currency, reserves, setting interbank interest rates and interest on reserves (IOR) rates, etc... to carry out its mandates. It has all the tools it needs to achieve any price target it wants.

Former Fed governor and short-list nominee for next Fed Chair Kevin Warsh said exactly this (about the Fed’s toolbox) in his recent Hoover Institution interview.

But the media reports "tariffs, tariffs, tariffs” while remaining silent on the money supply and silent on the Fed.

One more thought that puts this all in historical perspective: The United States was a major tariff/protectionist country in the late 19th century. The post-civil war era was dominated by Republican administrations and Congresses, and in those days the Republicans were a big pro-tariff party and imposed them all throughout.

So if tariffs cause inflation, why then in the golden era of protectionist tariffs was there not only no high inflation, but prices actually ***fell*** by 39% or an annualized inflation rate of -1.0%?

https://www.officialdata.org/1865-dollars-in-1913?amount=1

The answer: there was no Fed printing fiat money. And tariffs didn't cause inflation then either.

As we’ve already discussed in earlier articles the effects of tariffs on inflation are like those of oil, with both misunderstood.

When either tariffs or more expensive oil raise the prices of certain goods, especially inputs for other products that get purchased by consumers down the line, consumers ultimately do pay more for them. 

But if the money supply remains constant, then those same consumers will have less money left over to buy other products whose prices will necessarily fall due to decreased monetary demand. British economist David Ricardo understood this even in 1810 during the great Bullionist Debates. Knut Wicksell, F.A. Hayek, Milton Friedman and a plethora of other competent monetary economists have understood this basic principle too.

Yet over two centuries later journalists and even many economists continue to promote the tariff or oil “cost-push” fallacy.

Overall with tariffs or higher oil prices there is no inflation in the general price level... unless one of either two things also happens:

1) The central bank prints more money (the actual cause of the inflation)

2) The higher oil prices or tariffs begin to impact output and real GDP suffers by going negative (not the case in the late 19th century and GDP rose 3% in Q2).

Trump's tariffs are not causing inflation. The Fed continuing to inflate the money supply too fast is, but the Fed’s culpability—for the latest inflation report, for 2021 and 2022’s inflation, for the 2008 financial crisis, for the recent housing bubble, and for the last half century’s multiple asset bubbles and boom-bust cycles—is once again ignored by the press.

Left Coast Correspondent: Canadian and European Glaciers Receding Long Before Cars and Planes; Climate Alarmists Only Disclose 20th Century Info

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3 MIN READ - In a followup to Friday’s article on the retreat of Alaska’s Glacier Bay ice sheet, the Cautious Optimism Correspondent for Left Coast Affairs and other Inexplicable Phenomena uncovers more glaciers that have been receding long before man started driving cars. You’ll want to view the five attached pictures for reference.

For those who missed it, the original Glacier Bay map and analysis post is available at:

https://www.cautiouseconomics.com/2025/08/leftcoast28.html

During the 18th and 19th centuries the industrialized societies weren’t yet able to survey and map every glacier from all remote corners of the planet, but we still have accurate measurements of many glaciers in North America, Greenland, and Europe.

A popular tourist attraction is Canada’s Athabasca Glacier, off the famous Rocky Mountains Icefields Parkway. From the highway you turn off and take a short, narrow road less than a mile uphill. On the way up tourists see many small roadside markers, each featuring the written year indicating the glacier's earlier terminus.

The Correspondent was on that road several years ago and remembers seeing markers for years like 1880, 1890, and 1908 demonstrating the glacier was already retreating before mass production of automobiles and commercial flight began,

But the climate alarmism crowd always uses photos from more recent markers for their political material, like 1948 and 1982—basically any combination of years that frames the glacier’s retreat as having started when humans began producing large amounts of CO2.

A prime example is the first photo (attached) where we can see the glacier has retreated many dozens of yards at least from where it stood in 1992.

But also attached is a second photo which climate alarmists will never show you—from 1843. 

Yes, 1843.

Where’s this marker? Well you have to turn your car around and drive back downhill to the Icefields Parkway. Then you must cross the highway and go slightly uphill on the other side to reach the Glacier View Lodge. The marker is just outside the hotel.

In a straight line the 1843 marker is well over a mile from the glacier… which is probably why the global warming crowd doesn’t want the public seeing it: people might start to realize just how much the Athabasca had already shrunk before humans started driving cars.

There is also data on glaciers in Montana that show significant retreat from 1850 to 1900, or glaciers in Greenland that were retreating in the 19th century such as the Jakobshavn Glacier, although to the Correspondent’s knowledge there are no markers in the middle of the ocean to denote where it was in 1850.

And we have old 19th century photographs from Europe. In the next two photos we see the dramatic retreat of Switzerland's Rhone Glacier from 1850 to 1900, also before cars, planes, and electrical power plants.

Rhone glacier: 1850

Rhone glacier: 1900. Note new structures.

And then there’s some help from artists. Photography may not have been commonly available in 1835, but we have a painting that year of the Arolla and Tsijiore Nouve glaciers, also in Switzerland.

If we compare the furthest extent of the glaciers in the 1835 and 1880 images, and if we disregard climate activist allegations that the 1835 Swiss painter was being paid by ExxonMobil, a common theme appears: glaciers around the world were already observed retreating rapidly in the 19th century or even in the case of Alaska’s Glacier Bay, during the late 1700’s.

Yet when the global warming lobby shows "before and after" pictures of glaciers, they always cherry pick dates right before mass automobile production and dates near present day. Their objective is to convince (and frighten) viewers by factual omission that it's all the doing of those greenhouse gases and the future of humanity demands they hand over trillions of dollars in new taxes to save the planet.

There are many other northern hemisphere glaciers with 19th century records, but the global warming crowd isn’t going to volunteer the information. The process of finding them online is tedious and painstaking, but anyone with a little search engine persistence will find more.

Alaska Glaciers Receding Since at Least 1778, So Why Does NASA Start at 1941? (3 min read)

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3 MIN READ - CO recently posted some spectacular photographs of his vacation cruise sailing into Glacier Bay, Alaska to take in the magnificent ice sheets. 

However, the Cautious Optimism Correspondent for Left Coast Affairs and Other Inexplicable Phenomena would like to unapologetically leverage CO’s vacation to illustrate the less-than-honest way in which the climate alarmism lobby has used Glacier Bay in particular to further their global warming agenda.

Glacier Bay, and in particular the Muir Glacier within the bay, is cited by scientists and climate change activists as a stark warning of the dangers of a warming planet. According to them, man’s industrial activity and greenhouse gas production are precisely what has driven the glacier’s rapid inland retreat.

As evidence, NASA’s Climate365 page provides the first photograph (attached) contrasting Muir Glacier’s impressive ice sheet in 1941 which has retreated so far in present day that it’s mostly a watered inlet. 

What more proof could anyone need that we need to be forced into electric cars, lose our gas stoves, and pay trillions of dollars in new taxes? Humans began producing cars and flying airplanes at an accelerated rate after World War II, so it couldn’t be more obvious that mankind is the cause.

However what NASA never posts online is the tiny size of the 1941 glacier compared to its original size in 1778.

Yes, westerners mapped Glacier Bay as far back as 1778, but that’s not important for you to know.

As you can see from the second attached photo (map) Glacier Bay was first mapped by Captain James Cook in 1778, although there wasn’t much “bay” to map back then.

In 1778 the giant ice sheet covered the entire bay all the way out to the ocean, so Cook may not have even realized there was a “bay” there and proceeded up the coast.

In 1794 Captain George Vancouver took a closer look and, according to Gemini AI, “documented the presence of a large glacier filling the bay. At that time, the bay was just a small indentation in the coastline, with a massive glacier extending far into what is now Icy Strait.”

And as you can see from the map, the glacier has been receding rapidly from 1778 into the 19th, 20th, and 21st centuries. In fact, if one looks at the position of Muir Glacier in the 1940’s, the original ice sheet had already lost well over 80% of its length and far more of its volume before World War II, also before humans started driving cars and flying in planes en masse.

It had even lost two-thirds by the turn of the 20th century.

What caused the ice to recede so rapidly in the 18th and 19th centuries?

There were virtually no cars, the very first production internal combustion engine car manufactured in 1886.

There was no commercial aviation.

There was no commercial electricity generation on earth until 1882.

In 1900 there were about 1.6 billion people on earth, compared to 8.2 billion now, and back then almost none of them had cars, flew airlines, had electricity, or took mass transit like buses and only a tiny number had ever ridden a train.

Clearly something other than human CO2 made the glaciers melt before 1900. Some scientists argue the planet has been warming for quite some time, coming out of the “Little Ice Age” of the 16th through 19th centuries, but don’t know for sure, just as the climate alarmists clearly don’t know for sure themselves. 

If you look at the map’s other inlet glaciers, the numbers are even worse. Many of them had already receded 90% from the ice sheet’s original ocean terminus by dates like 1892 and 1912, and the retreat has slowed dramatically since then.

This tactic of parading glacial retreat exclusively between recent dates that coincide with mass automobile, air travel, and electricity production is used over and over by the climate alarmist crowd—including NASA (i.e. the federal government). They showboat dramatic ice loss from glaciers around the world, but deliberately conceal the even greater ice loss that preceded large scale human greenhouse gas activity. After all, we must all believe glacial retreat only started when lots of humans started driving cars.

ps. Although westerners weren’t present to map every glacier in every remote corner of the earth in the 18th century, the Left Coast Correspondent has seen very old data on many glaciers in Canada, Europe, and Greenland that show the same pattern. 

In a followup he’ll later post a typical 20th century retreat photo of the famous Canadian Athabasca Glacier—a popular tourist attraction—alongside another photo of what he’s seen firsthand at the glacier but which the climate alarmists never show the world: far more distant retreat markers from the mid-1800’s.