Some Austrians like Mish Shedlock say that "inflation is an increase in money and credit." Robert Prechter says the same thing and defines credit as that including corporate bonds, notes, bills, etc (http://lynncoins.com/deflation1.htm). Shouldn't technically inflation just be an increase in the money supply with the two possible ways of doing this being Fed operations and bank lending? If IBM issues a bond, money is merely transferred from the bond buyer to IBM. No money has been created or destroyed. Any thoughts?
I think you should start by defining what exactly you are talking about when you say "money". Then everything will be easier.
There are discussions among economists about what they consider the money supply: M1, M2, M3 or even some custom aggregate. Without defining money supply first you will get a semantical discussion. And once you have defined money supply the problem is gone.
Inflation is the increase in the supply of money without a corresponding increase in the demand for cash holdings.
I think that bond issuance is not inflationary because the person who purchases $X of bonds can no longer spend his investment until it comes back to him in the form of the coupon and eventually the principle. The "spending power" is simply transferred from one person to another.
This is very different from someone who puts his money in the bank. The bank can set up a demand depositit for 90% of what was saved and then we have a situation where both the original saver and the borrower of the 90% can both spend "their money" at the same time.
By the way, where did you hear that mish was an Austrian?
What Went Wrong with Economics
justinx0r: Inflation is the increase in the supply of money without a corresponding increase in the demand for cash holdings.
Would you kindly provide a link that elaborates on this?
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It's easy to refute an argument if you first misrepresent it. William Keizer
Sure Dave, enjoy:
http://www.coordinationproblem.org/2009/09/mises-defining-inflation-the-monetary-equilibrium-way-in-1951.html
Thank you, very interesting.
justinx0r: "Sure Dave, enjoy:
http://www.coordinationproblem.org/2009/09/mises-defining-inflation-the-monetary-equilibrium-way-in-1951.html"
Smiling Dave: Thank you, very interesting. If you're going to quote Mises on this matter, then you should at least have the intellectual frankness to admit that this is the exception and not the rule. Unless, you're not familiar with Mises except for a few blog entries that discuss him, then I would strongly suggest that you familiarize yourself with him According to Mises in HA, inflation is not even an catallactic valid concept. The definition is meaningless and conveys nothing about economics. As long as you consistently define your terms, then any definition is just fine. | Post Points: 5
If you're going to quote Mises on this matter, then you should at least have the intellectual frankness to admit that this is the exception and not the rule.
Unless, you're not familiar with Mises except for a few blog entries that discuss him, then I would strongly suggest that you familiarize yourself with him
According to Mises in HA, inflation is not even an catallactic valid concept. The definition is meaningless and conveys nothing about economics. As long as you consistently define your terms, then any definition is just fine.