Von
http://mises.org/daily/908
"Increases in the money supply set in motion an exchange of nothing for something. They divert real funding away from wealth generators toward the holders of the newly created money. This is what sets in motion the misallocation of resources, not price rises as such. Moreover, the beneficiaries of the newly created money--i.e., money "out of thin air"--are always the first recipients of money, for they can divert a greater portion of wealth to themselves. Obviously, those who either don't receive any of the newly created money or get it last will find that what is left for them is a diminished portion of the real pool of funding.
Furthermore, real incomes fall, not because of general rises in prices, but because of increases in money supply; in other words, inflation depletes the real pool of funding, thereby undermining the production of real wealth-- i.e., lowering real incomes. General increases in prices, which follow increases in money supply, only point to the erosion of money's purchasing power--although general rises in prices by themselves do not undermine the formation of real wealth as such."
"While increases in money supply ( i.e., inflation) are likely to be revealed in general price increases, this need not always be the case. Prices are determined by real and monetary factors. Consequently, it can occur that if the real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might take place. In other words, while money growth is buoyant--i.e., inflation is high--prices might display low increases. Clearly, if we were to regard inflation as a general rise in prices, we would reach misleading conclusions regarding the state of the economy.
On this, Rothbard wrote, "The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware" (America's Great Depression, Mises Institute, 2001 [1963], p. 153)."
