I am looking for a good, compact, definition of inflation. Ignoring the mainstream 'increase in general level of prices' with all its weaknesses, I came upon three definitions in the Austrian tradition that seemed suitable:
- a general increase in money supply (Shostak) - very clear, but any increase in the supply of money will have a tendency to raise money prices, which is not unnatural in itself; the evils of inflation as we know it come from a more specific phenomenon
- increasing the money supply by violating the property rights of others (Hulsmann) - a beautiful, idealistic definition with a strong appeal, but it immediately begs for more details of which property rights are violated and in what manner. Not short in the end.
- the process of issuing money beyond any increase in the stock of specie (Rothbard) - this is a pretty good one, if you understand what it says. I find this probably the most useful, but it could handle some rewording.
I bumped into other definitions, but many refer to backing by precious metals, which unfortunately does not apply to the current situation. A more general definition is needed.
If you know of a good definition and can point me to the book or article it comes from, it would be a great help. Creative rewording of other definitions is also welcome.
Mises Wiki | Economic Resources and Books (search engine)
Inflation is an increase in the supply of money or credi. Nothing more, nothing less. Deflation is a decrease in the supply of money or credit. Nothing more and nothing less.
In an imaginary world of a fixed stock of goods (assume consumibles replaced at precisely the rate of consumption), and no changes in the preference of holding cash, the aggregrate price level can not change. Specific goods could go up, but the money spent on them would be not spent on other goods, forcing their prices down.
In the real world, even on a 100% reserve gold standard, there is inflation. More gold is mined than is consumed. Thus the amount of gold in the marketplace increases with every increment of time. However, the rate of increase is slow and stable (at least as demonstrated in history, and in aggregate). The rate of increase of goods and services far exceeds the rate of increase of the money supply, so prices fall over time (more goods available for the given stock of money, prices of goods must go down as they compete for the money).
In a period of destruction of goods or uncertainty, shortages happen. Prices for goods go up (less goods available, same money stock, competition for goods drives prices up). This is not inflation or deflation. Inflation and deflation are changes in the supply of money or credit. This is a change in prices due to a shortage of goods.
In our current real world, we do not operate on a 100% reserve gold standard. We operate on a fractional reserve fiat standard, which is about as far from a 100% reserve gold standard as one can get. The supply of money and credit can be changed in myriad ways - issue of new notes, changing the bank reserve requirements, issue of fictitious bank credit, or what have you. When the rampant inflation that inevitably results from political control of the supply of money and credit causes unsustainable investment in production or consumption, the seeds of the inevitable bust have been sown. The stock of productive capital is depleted over time, and the malinvestments caused by inflation consume more of the productive structure. The longer malivestments happen, the more damaging and painful the reallocation of capital back to productive purposes becomes.
Our collective problem is that we are currently at the end of an extremely long inflationary boom. There have been previous corrections since the advent of the boom in 1913. But the simple truth is that the tendancy to boom has never really been eliminated, because as Hulsmann points out society is incredibly unwilling to eliminate the mechanism that creates the inflation (government control of the supply of money and credit). Perhaps this bust will not end in Mises "destruction of the monetary system involved," but hope for the best and prepare for the worst. All of the monetary systems that I am aware of are fighting each other to be the first to destroy themselves, and they are all interrelated.
I don't believe any definition other than "inflation - an increase in the supply of money or credit" and "deflation - a decrease in the supply of money or credit" is necessary. I also believe that to use any other definition is misleading and plays into the hands of the apologists for statism. Take back the correct definition!!
One hundred trillion Zimbabwe dollar note
Read Henry Hazlitt's definition.
Juan:Short and to the point, I like that. Except that it relies on the nonsensical concept of 'demand for money'.
Short and to the point, I like that.
There is no concept of 'demand for money'? What are you talking about? What is increasing one's cash balance or hoarding if not 'demand to hold money'?
But I'll give you a shorter and better definition of inflation:
Increase in money supply. Period!
What does 'demand' have to do with the definition of inflation?
Peter Sidor: I am looking for a good, compact, definition of inflation.
I am looking for a good, compact, definition of inflation.
Inflation is a general* decrease in the per unit purchasing power of a currency/store of value[ i.e.a loss of purchasing power] relative to previous purchasing power.
* "general" i.e. a decrease as measured against a broad range of consumer goods and services [more units of currency are now needed to buy the same amount of most goods/services, relative to previous numbers of units required to buy those same goods/services].
For more information about onebornfree, please see profile.[ i.e. click on forum name "onebornfree"].
for you inflation is a decrease in the pre unit purchasing power of the currency? this is less good than confusing money and price inflation. as you dont even have an increasing term, but a decreasing term.
if the money supply contracted, and output of goods and services fell yet more dramtically, you think inflation is a good label for that?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
DD5:What is increasing one's cash balance or hoarding if not 'demand to hold money'?
But I'll give you a shorter and better definition of inflation: Increase in money supply. Period!
What does 'demand' have to do with the definition of inflation ?
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
It is incredible you are debating about the definition of inflation. It is impossible by definition.
We have seen how many are used out there, so pick whichever suits your research.
Nothing. You were just bashing each other, at least it seemed to me, for having the wrong definition.
"i am looking for a good, compact, definition of inflation....."
"- a general increase in money supply (Shostak) - very clear"
rereading you original post is seems that you have your definition.
as for the rothbard refining the definition to pinpoint an activity where a worded paper title to a 'money amount' , thats still inflation...but perhaps done with some direct deceit - not enough specie corresponding to paper titles.
Juan:What's wrong with trying to define one's terms ? If we use the same word to refer to different things we're going to talk past each other. Should we use language to miscommunicate ?
There's nothing wrong with defining one's terms. What was being objected to, I think, was having an argument about that definition. If the goal is communication, say that inflation1 is a decrease in purchasing power, and inflation2 is increase in money supply. Then we can argue about propositions like "inflation1 causes inflation2" "inflation2 causes inflation1" and so on.
Juan:Well, some individuals might want to 'increase their cash balances' - still there's no aggregate demand for money that makes sense or is relevant to defining inflation.
Who mentioned aggregate demand? I think we all agree here about the evils of aggregation. The idea that "demand for money" is an absurd concept is, well, absurd. Do you really think it makes no sense at all for Rothbard to write about the reserve demand for money? Certainly the concept demand for money makes as much sense as the concept of demand for donuts - which also should not be aggregated.
Juan:Dunno. People usually don't demand to have their money devalued, do they ?
Well, no, no one wants, all else being equal, the money in their pockets to be devalued. When all else is not equal, though, they might - such as people who owe more money than they own.
from what i have read at the austrian economic websites inflation is nearly always defined as an increase in the money supply and then the austrian sites go on in as nearly many cases to say that mainstream economists define inflation differently (stressing incorrectly).
if austrians (those responsible for the school of thought and followers) define inflation (as i have read at the mises site and at lrc) as an increase in the money supply , if this was the true historical definition in previous centuries (claimed as such at the mises site), then this shouldnt be such an issue.
I didn't have the time to engage in the discussion, but it was instructive. :)
In the end, it was jason4liberty's extensive answer that persuaded me to take the "increase in supply of money" as the most useful definition (well for me), big thanks to him. Also, richie2044's article link was extremely useful (was aware of the book, but the summary came in handy). I have marked both as verified answers.
Thanks to all of you!
Do you really think it makes no sense at all for Rothbard to write about the reserve demand for money ? Certainly the concept demand for money makes as much sense as the concept of demand for donuts -
JAlanKatz: Juan:Dunno. People usually don't demand to have their money devalued, do they ? Well, no, no one wants, all else being equal, the money in their pockets to be devalued. When all else is not equal, though, they might - such as people who owe more money than they own.
Juan:quote]Do you really think it makes no sense at all for Rothbard to write about the reserve demand for money ? Certainly the concept demand for money makes as much sense as the concept of demand for donuts -
Ok, I have no idea what you mean here. What is your objection to the idea of "demand for donuts?"
Increasing the supply of money beyond demand.