The Anti-Concepts of Money: Inflation

If you’ve read the previous essays on Purchasing Power, Velocity, and Money from this Anti-Concepts of Money series we can now discuss the Anti-Concept of Inflation.

The Anti-Concept of Inflation 

The Anti-Concept of Purchasing Power leads us to the Anti-Concept of Inflation. 

That pseudo-equation already smuggles that any increase in the quantity of money causes prices to rise, regardless of the cause and circumstances of the increase, and regardless of the nature of the thing called money. 

It should be obvious that gold mining, during the time of the gold standard, is not the same as the irredeemable paper credit pumped out like effluent, by the Federal Reserve. At least it would be obvious, if not for the cognitive impairment caused by the anti-concepts we have been discussing. 

According to Wikipedia: 

“inflation refers to a general progressive increase in prices of goods and services in an economy.” 

Non-Monetary vs Monetary Forces

This definition unites a rise in prices due to nonmonetary forces with a rise due to monetary forces. Indeed, it makes it nearly impossible to conceive of the former case at all. 

An example of nonmonetary forces is when the government mandates that petroleum refineries add ethanol to gasoline. This is a useless ingredient—consumers do not value it, and often do not know it’s even there. This has been happening in every sector of the economy for many decades, relentlessly driving prices up. Hence people think purchasing power is down. They don’t realize that the currency is buying just as much stuff before, but it’s just that some of the stuff is stuff they don’t want. Embedded in the higher price of a hospital visit is more labor put in by specialist clerks for all the paperwork, more administrators, more compliance officers, etc. 

The government is also restricting production in many other ways, such as banning hydrofracking for natural gas, and restricting its transport. The government is adding taxes to every gallon of gas, every gallon of water used by a restaurant, and every minute of phone service. Most people have little awareness of this constant barrage of new costs piling up in the prices of everything. 

Inflation and the Monetarist Problem

And, the definition itself is curious, to an economist. Any Monetarist should bristle at this definition, retorting that inflation is an increase in the money supply. 

Given the foregoing anti-concepts, people have no choice but to conclude that an increase in quantity of money necessarily causes the prices of goods to rise. Which is what that quibbling Monetarists would tell you. 

And, as we see from their equation, the two are literally equated (assuming goods supply and velocity don’t change). In practice, if not necessarily in definition, increasing prices and increasing quantity are treated the same. Thus, the two meanings are both used widely, and sometimes interchangeably. 

Milton Friedman and Inflation

For example Milton Friedman, arguably the leading Monetarist of all time, said in a 1963 talk: 

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” 

Here, a Monetarist who certainly made the distinction between quantity of money and prices of goods, says increasing prices is caused by increasing quantity of money, and uses the word inflation to refer to the former! 

Mainstream economics has pulled off the greatest sleight of hand, ever. It has gotten people to focus exclusively on inflation and loss of purchasing power, which people believe is caused by the Fed increasing the money supply and/or velocity. If one wanted to give the regulators and tax authorities a scapegoat to take the blame for their misdeeds and hence a free hand to commit more of them, one could not devise a better system. 

So, what’s our definition of inflation?Find out here: What is Inflation?

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