Milei responds to the economists: why he says they are wrong about pass-through

President Javier Milei published an extensive economic analysis in which he defended his monetary view of inflation, questioned economists who associate the rise of the dollar with an immediate pass-through to prices, and explained the theoretical foundations behind his policy to stabilize the Argentine economy.

Criticism of analysts and the "passthrough"

In the article published on his X account (formerly Twitter), Milei argued that the idea that the devaluation of the peso is automatically passed on to prices is false and reveals a "deep lack of knowledge in monetary theory."

The president targeted the persistence of analytical errors by consultants and economists who—according to him—have been failing in their forecasts since before the change of government.

The origin and nature of money

Milei reviewed the historical evolution of money, from barter to metallic currency and paper money, emphasizing that money is a means of indirect exchange and that its demand derives from the total demand for goods and services.

In this context, he questioned the historical role of the State in monetary issuance, accusing it of appropriating the monopoly to "perfect the robbery" through taxes and inflation.

Inflation: an excess supply of money

The President stated that inflation occurs solely due to an excess supply of money relative to its demand. This may be due to—he explained—an increase in the monetary base or a decrease in the demand for money, which reduces purchasing power and raises prices.

In this regard, he reiterated that "inflation is always and everywhere a monetary phenomenon," a phrase attributed to Milton Friedman.

Lags in monetary policy and the Hume-Cantillon effect

Milei warned that the impact of monetary policy is not immediate and that, in Argentina, the lag ranges between 18 and 24 months. For this reason, he estimated that inflation could only become "a bad memory" by mid-2026.

He also explained the Hume-Cantillon effect, according to which the entry of new money benefits those who receive it first before prices adjust, generating distortions and an uneven increase in prices.

The dollar as a financial asset

The president argued that in a scenario of excess monetary supply, the dollar rises first as a financial asset, followed by the prices of tradable goods, wholesale, retail, and finally, wages.

For Milei, this demonstrates that causality goes from the quantity of money to prices and not from the exchange rate, thus invalidating the notion of "passthrough" as a general theory.

The subjective theory of value and Menger's principle

In the final part of his article, Milei turned to Carl Menger's subjective theory of value to explain that prices determine costs, and not the other way around. According to this approach, in the face of changes in relative prices, if there is no monetary validation by the Central Bank, inflation is not caused.

He also warned about the error of confusing historical correlations with causality: "For 90 years, except during Convertibility, the rise of the dollar was followed by inflation; that doesn't mean the dollar causes inflation."