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.
It does guard against uncertainty, for money can be exchanged against any good by definition.
Juan:Bottom line is, all this talk about 'demand' for money when discussing inflation is totally misleading.
You keep saying this, where is proof?
Juan: oneborn:Demand for money[to hold, hoard, save, not spend] is just a physical manifestation of the psychological need/demand for security [i.e. the elimination of uncertainty]. This is beginning to border nonsense. A need for 'security' can't be fulfilled by just holding more cash. Depending on context 'hoarding' cash can be completely useless whereas hoarding real goods can save your life. Bottom line is, all this talk about 'demand' for money when discussing inflation is totally misleading.
oneborn:Demand for money[to hold, hoard, save, not spend] is just a physical manifestation of the psychological need/demand for security [i.e. the elimination of uncertainty].
"A need for 'security' can't be fulfilled by just holding more cash."
I agree that it cannot perhaps bring total fulfillment, just as the need for happiness can never be entirely fulfilled by more wealth and evermore "things" [material goods]. Just like anything else, for some it will provide more fulfillment than for others.
Nevertheless, it [i.e. holding/saving more cash instead of spending it] is what many people often do when striving for the perhaps unachievable goal of feeling more secure under certain economic conditions - no differently than they strive for the ever more [or even perfect] happiness by attempting to accumulate ever more material possessions. They can never reach a state of a feeling of perfect security, or of perfect happiness through perpetually having more "stuff"- however that does not stop many from striving towards both of those ultimately unattainable goals.
"Depending on context 'hoarding' cash can be completely useless whereas hoarding real goods can save your life. "
True, but I never suggested that holding cash was/is considered a cure-all for all economic conditions [no more than gold ,silver, bonds, or even wampum beads , can be].
For example, under hyperinflation conditions [i.e super fast currency depreciation ] , most attempt to exchange their rapidly depreciating currency for real goods, or go to direct barter, forgoing exchange of the medium of exchange altogether.
In such a scenario you could say that the demand to hold cash has fallen to practically zero- however people still strive for the feeling of greater security merely by the act of going to direct barter in that scenario- because they generally believe [and rightly so] that they are better off [safer, more secure] with tangible goods and without actual cash under that particular economic scenario [hyperinflation], despite the fact that almost no one says to themselves "uh,oh! hyperinflation- better ditch the cash and go to direct barter whenever possible"- these actions occur as a natural re-action to prevailing economic conditions and the constant individual need to feel safer and more secure , particularly in the short term.
For more information about onebornfree, please see profile.[ i.e. click on forum name "onebornfree"].
scineram: You keep saying this, where is proof?
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."
True, but I never suggested that holding cash was/is considered a cure-all for all economic conditions
For example, under hyperinflation conditions [i.e super fast currency depreciation ] , most attempt to exchange their rapidly depreciating currency for real goods,
onebornfreedotblogspotdotcom: Harry Felker: onebornfreedotblogspotdotcom:Demand for money[to hold, hoard, save, not spend] is just a physical manifestation of the psychological need/demand for security [i.e. the elimination of uncertainty]. And what do you call the demand for money to exchange goods and services? You are free to label it however you wish- even to give it some fancy sounding esoteric "economic" name, I suppose, if that's what floats your boat. The important thing however, is to recognise that there is a marked difference between money that is deliberately held [saved ] and not spent, in order to make the holder feel more secure under whatever economic circumstances cause them to feel less certain and less secure about the present and the immediate future, and money that continues to circulate through the economy as it is exchanged for goods and services the spender feels he needs.
Harry Felker: onebornfreedotblogspotdotcom:Demand for money[to hold, hoard, save, not spend] is just a physical manifestation of the psychological need/demand for security [i.e. the elimination of uncertainty]. And what do you call the demand for money to exchange goods and services?
onebornfreedotblogspotdotcom:Demand for money[to hold, hoard, save, not spend] is just a physical manifestation of the psychological need/demand for security [i.e. the elimination of uncertainty].
And what do you call the demand for money to exchange goods and services?
You are free to label it however you wish- even to give it some fancy sounding esoteric "economic" name, I suppose, if that's what floats your boat.
The important thing however, is to recognise that there is a marked difference between money that is deliberately held [saved ] and not spent, in order to make the holder feel more secure under whatever economic circumstances cause them to feel less certain and less secure about the present and the immediate future, and money that continues to circulate through the economy as it is exchanged for goods and services the spender feels he needs.
This is not at all answering the question...
let me try again...
What do you call money that is not destined for "to hold, hoard, save, not spend", that is in effect to be spent?
When a firm hires employees and has an increased physical cash need, or as I keep calling it a demand for money, to pay them, what is that called if it is not a demand for money? I am not looking to make up "some fancy sounding esoteric "economic" name", I would like to know what the term is, or is it some concept that has no name?
It sounds like the ocean, smells like fresh mountain air, and tastes like the union of peanut butter and chocolate. ~Liberty Student
When a firm hires employees and has an increased physical cash need,
Juan:When a firm hires employees and has an increased physical cash need, A firm usually produces stuff which people buy and pay for using money. That's how a firm gets 'physical cash' to pay its employees.
Not what I was asking, I know this....
Juan:I know my reply sounded rather silly, but the point is that if the amount of money available for all transactions was somehow fixed there wouldn't be any real problem. There's no demand for 'new' money to pay employees or any other thing. Prices would simply change to reflect new conditions.
Ok, that is fine, regardless of injection of new money into the system, what is it called when the firm has an increased demand for capital...
What is the term used for this, I called it demand for money, was this wrong, if so, what do we call this?
Harry Felker: onebornfreedotblogspotdotcom: Harry Felker: onebornfreedotblogspotdotcom:Demand for money[to hold, hoard, save, not spend] is just a physical manifestation of the psychological need/demand for security [i.e. the elimination of uncertainty]. And what do you call the demand for money to exchange goods and services? You are free to label it however you wish- even to give it some fancy sounding esoteric "economic" name, I suppose, if that's what floats your boat. The important thing however, is to recognise that there is a marked difference between money that is deliberately held [saved ] and not spent, in order to make the holder feel more secure under whatever economic circumstances cause them to feel less certain and less secure about the present and the immediate future, and money that continues to circulate through the economy as it is exchanged for goods and services the spender feels he needs. This is not at all answering the question... let me try again... What do you call money that is not destined for "to hold, hoard, save, not spend", that is in effect to be spent? When a firm hires employees and has an increased physical cash need, or as I keep calling it a demand for money, to pay them, what is that called if it is not a demand for money? I am not looking to make up "some fancy sounding esoteric "economic" name", I would like to know what the term is, or is it some concept that has no name?
"What do you call money that is not destined for "to hold, hoard, save, not spend", that is in effect to be spent?"
I have no idea.
Apparently it cannot fit into Juan's thin skull that dollars, gold coins coins or whatever are goods too, and as such there is a demand for them like any other good.
scineram: Apparently it cannot fit into Juan's thin skull that dollars, gold coins coins or whatever are goods too, and as such there is a demand for them like any other good.
Can you help me out, am I right or wrong? When I business needs more of something, for what ever reason it is demand, in this case, when they need money, would it not be a demand for money?
Juan:I suggest you don't pay attention to scineram. He doesn't know what he's talking about. Why don't you check JAlanKatz attempt at pushing the same sophism in this thread a couple of days ago ? His talking about supply and demand curves for money was shown to be wrong.
Fair enough, I am digging for information, can you answer this question?
I think commodity based or token based money would be irrelevent to the term...