Excuse me if I wonk-it up just a bit.
A few days ago, my brother posted an inquiry on his Facebook page regarding the merits of charging an entry fee for people to listen to music at a vineyard. His question was whether it was "right" or not to charge $5 per vehicle to listen to live music and , perhaps, sample or buy a bottle of wine. The responses were all over the board with some individuals strongly in favor of free admission and others, including this author, who saw it as an imperative to charge an entry fee.
It got me thinking about value. The value people place on things and the calculus each of us apply to a decision to buy or not to buy.
Cash in circulation (CiC) is a measure of the physical amount of, well, cash in circulation. The Chairman of the Federal Reserve (e.g. The Fed) Dr. Ben Bernanke is a smart guy, a really smart guy and a student of the Great Depression. Years ago long before he was the Chairman he cited a paper by Milton Friedman which defined the principle cause of the enduring depression was the tightening of credit and that the impact would have been reduced had fiscal policies been loosened and liquidity added to the market. Subsequently the press has come to call Dr. Bernanke, "helicopter Ben" given his support of Friedman's theories and his own comments about his willingness to throw dollar bills out of helicopter to increase market liquidity.
During this recession he has been true to his words and has hasn't just thrown dollar bills: he has shoveled dollar bills. Between the end of 2008 and now CinC has tripled. That's right. There are three time the amount of cash being exchanged between individuals like you and like me and those folks involved in commercial enterprise. This is where inflation comes in.
The classic definition of inflation is, "...too many dollars chasing too few goods". And, what have we all observed over the past few months? First the amount of dollars in circulation has tripled. Secondly, overall production has decreased as demand has fallen through the floor. We have primed the pump with dollars and decreased the goods available to buy.
Making maters more interesting is the increasing reliance of this Administration of the opinions of Mr. Paul Volkert. For those of you whose memory doesn't include the late 1970s, Mr. Volkert was the Chairman of the Fed during President Carter's administration and was not adverse to inflation. It was under Mr. Volkert's Chairmanship that I held a 13.5% home mortgage: something to think about.
That we have not seen inflation take off is a sign of how soft the economy remains.
So, you may ask: What does this have to do with the wine business in Iowa?
Were I the owner of a winery I would follow the maxim of any business in a recession: I would work like hell to maintain, or grow, market share. I would do the things which would make my company stronger than my competition when the recovery takes place and pent-up demand is applied across the market.
For instance, IBM has spent more than $8 billion dollars in Research and Development since the recession began. When the market firms up they will have new products and service ready for a waiting market.
As a vintner I would be: 1) Looking a expanding capacity by acquiring land or putting that land which I already hold into full production. When inflation comes the price of assets (including land) will increase as the value of the dollar decreases. 2) Experimenting with new varietals, blends and developing new products. 3) Aggressively examining every single dollar which I spend to ensure that I am not bleeding unnecessary expenses. 4) Trade profit for market share by reducing the retail price of my product. The goal in any recession is to survive.
Bottom line: The physics of money demands that inflation will return. The savvy business person will survive the downturn and prepare themselves for the inevitable (inflationary) recovery.