8 ms·

The fed has successfully redefined the word “inflation” to mean “an increase in cost”, which conveniently leaves room to blame others for rising prices. The or

The fed has successfully redefined the word “inflation” to mean “an increase in cost”, which conveniently leaves room to blame others for rising prices. The original meaning of “inflation” was “an increase in currency supply”. Debasing the currency supply is why the dollar is worth less and everything costs more. It is the result of deficit spending.

pgwhalen 3y ago
> The original meaning of “inflation” was “an increase in currency supply”. Can you provide a source for this? It seems like an overly monetarist view to me: trying to be assertive about the cause rather than just describing the phenomenon.
- deleted 3y ago
  [deleted]
- Bjartr 3y ago
  According to etymonline[1] >Monetary sense of "enlargement of prices" (originally by an increase in the amount of money in circulation) first recorded 1838 in American English. I also found this pdf from the Federal Reserve Bank of Cleveland called On the Origin and Evolution of the Word Inflation[2] that goes into more detail. [1] https://www.etymonline.com/word/inflation https://www.etymonline.com/word/inflation [2] https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation-pdf.pdf https://www.clevelandfed.org/-/media/project/clevelandfedten...
- QuesnayJr 3y ago
  This is a completely idiosyncratic definition that is advocated for by followers of midcentury economists like Mises. The standard definition of inflation is an increase in the general price level. Of course the size money supply and inflation are related, but they're not synonymous.
  - pixl97 3y ago
    Ya, I would imagine if you increased productivity without an increase in monitary supply you'd create deflation. Of course real economic activity is more varied than that so it gets complicated quick.
BoiledCabbage 3y ago
> The original meaning of “inflation” was “an increase in currency supply”. Citation needed. Inflation in economics as far as I know has always meant an increase in prices. Any authoritative place citing this alternate definition being the original?
- SantalBlush 3y ago
  "On the Origin and Evolution of the Word Inflation" [0] But even this paper explains that the word was well into its evolution during the 19th century, before the Fed existed: >By the late nineteenth century, however, the distinction between “currency” and “money” was becoming blurred. >At the turn of the century, economists tended to refer to any circulating medium as money, and any change in the circulating medium relative to trade needs as an inflation of money. But this shift in meaning introduced another problem. Although it is easy to determine the amount of currency relative to the stock of a precious metal, how does one know when the amount of the circulating medium exceeds “trade needs”? >Economists appear to have reached a definitional crossroads during the first several decades of the twentieth century. Presumably, because they could be certain of the “excessiveness” of the circulating medium only by its effect on the price level, the notions of an inflated currency and prices became inextricably linked. So no Fed conspiracy as far as I can tell. [0] https://www.clevelandfed.org/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation https://www.clevelandfed.org/publications/economic-commentar...
SantalBlush 3y ago
Can you please provide a source that shows the Fed was responsible for redefining the word?
drxzcl 3y ago
It’s becoming increasingly clear that deficit spending is not, in fact, the main driver of inflation. Just look at the recent past. We’ve been deficit spending since 08 without any appreciable inflation. Then fuel and commodities prices surge because of war-induced shortages and BOOM! prices rocket double digits.
- amacneil 3y ago
  During the past few decades, inflationary forces of deficit spending were offset by deflationary forces of globalization (everything became cheaper as we moved all production to China and other countries). Now we are seeing the effects of that offset being removed.
  - AlexandrB 3y ago
    This seems self-contradictory. If inflation is caused by an increase in the money supply, why would lower prices counteract it? It's not like cheap goods reduce the money supply.
    - AnimalMuppet 3y ago
      It's not just the increase of the money supply. It's the increase of the money supply faster than the "stuff" of the economy increases. Globalization didn't just make stuff cheaper. Supply and demand says that the price would not go down (regardless of the cost of manufacturing) if there wasn't more of it than there had been. Globalization increased the "stuff" part of the economy.
      - JackFr 3y ago
        > It's not just the increase of the money supply. It's the increase of the money supply faster than the "stuff" of the economy increases. This. Inflation always is too much money chasing too few goods. Secular shortages give you too few goods. Loose monetary policy (or fiscal policy) give you too much money. (A tight monetary policy can immunize effects of a loose fiscal policy - if there is institutional will.)
deleted 3y ago
[deleted]
deleted 3y ago
[deleted]
jadbox 3y ago
There's no evidence that inflation now or in the last decade has anything to do with deficit spending. It's a favorite talking point of reactionaries because it feels so close to individual finances, but it's far more disconnected. This inflation is primarily caused by global speculative asset/supply changes in world trade markets. https://www.pewresearch.org/short-reads/2022/06/15/in-the-u-s-and-around-the-world-inflation-is-high-and-getting-higher/ https://www.pewresearch.org/short-reads/2022/06/15/in-the-u-...
- marcus0x62 3y ago
  > This inflation is primarily caused by global speculative asset/supply changes in world trade markets. Where did the money to bid those speculative asset prices up come from?
  - drxzcl 3y ago
    Uncertainties in the continued supply were driving up the price of futures. It’s not “let’s bet some free money on the price of gas increasing”. It’s “we need to secure enough gas to keep the factory running next year, let’s buy as much as we can at any price we can reasonably turn a profit at”.
    - marcus0x62 3y ago
      Uncertainties in the continued supply of S&P 500 futures drove up the price of S&P 500 futures? People continued to bid the price of residential real estate up solely because they believed there was a lack of housing starts? Or maybe — just maybe — the ZIRP free money spigot had something to do with it as well.
      - drxzcl 3y ago
        I was referring to the commodities market. The stuff you need to keep your factory running. I agree with you that the financial economy is largely divorced from actual stuff, which is why pumping money into it doesn’t lead to rising prices of stuff, just rising prices of financial instruments. That’s the key here. Increasing the money supply should lead to increase in prices if and only if it is spent on stuff. If it’s squirreled away in complex financial instruments, we just call it “amazing returns”
ajross 3y ago
This is, to be blunt, nonsense. Virtually every economics textbook is going to take pains to explain how those two definitions are effectively identical. You can't have one without the other. Can you cite a reasonable explanation for the perspective you're trying to push? No one thinks this way outside of partisan news media, and even then no one tries to make points with this level of specificity (precisely because it doesn't make sense). And no, it's not about "deficit spending", which is a delta between government spending and government revenue. Money supply has very little to do with the former and quite literally nothing to do with the latter.
- lukas099 3y ago
  A stable money supply chasing fewer goods (shortage) would also cause inflation.
- mminer237 3y ago
  Government spending puts money into the economy and taxation takes it out. Sure interest rates affect inflation too through loans and GDP affects the other side, but government deficits are a big part of inflation.
  - ajross 3y ago
    > government deficits are a big part of inflation. If they are then you could show me a correlation where periods of high deficits correlate with high inflation. You can't, because if anything the opposite is clearly true over the past 30-40 years. Jumping to declare that this is true now is a bit much, don't you think? Especially since deficit spending hasn't changed trajectory over the past two years as inflation dropped. Again, this is partisan economics. You're repeating stuff that you heard from people with an axe to grind. It's just not correct.
    - mminer237 3y ago
      Deficit spending has dropped tremendously the last couple years, almost perfectly mirroring inflation: https://i.imgur.com/OhHSukq.png https://i.imgur.com/OhHSukq.png Historically there admittedly hasn't been such a trend, but historically we've never printed as much money as we did in 2020 before. I never said it was the only factor. It's also clouded by the fact that if what I'm saying is true, deficit spending is a great course of action when other factors push inflation down. I'm just intuiting stuff from the basics. I haven't really heard anyone opinionate either way on this before, but how could adding 25% more money to the economy not create inflation?
lukas099 3y ago
Increase in cost makes more sense. Increase in currency supply is only one possible cause of costs rising.
monero-xmr 3y ago
It’s amazing how definitively everyone speaks about economic theory, yet intelligent people come to wildly different conclusions. That should make you wonder how definitive you should be. My belief is that inflation at the macro level is always caused by an increase in the money supply, but this also causes debate because the money supply can increase through multiple mechanisms. One is bank lending, another is money printing. The latest inflationary period was caused by money printing - literally dropping money from the helicopter into everyone’s bank account. This is why increasing interest rates hasn’t slowed inflation quickly, because consumers still have a lot of free money handed out to them rather than loans.
throw0101b 3y ago
> The original meaning of “inflation” was “an increase in currency supply”. Debasing the currency supply is why the dollar is worth less and everything costs more. It is the result of deficit spending. Japan enters the chat Japan has been increasing the money supply for decades and yet the inflation rate has remained flat and gone negative more that once: * https://fred.stlouisfed.org/graph/?g=1680i https://fred.stlouisfed.org/graph/?g=1680i Further, you're talking like inflation is entirely bad. While inflation that is "too high" (for some value of "high") is not something most folks want (as was re-learned recently), what's the alternative? Negative inflation rates (deflation) is generally worse (as was learned during the Great Depression). And having zero inflation means having a perfect balance between the supply of money and the current demand needed to run the economy (which is impossible). Having a fix supply of money (like with the Gold Standard), or too little of it, prevents economic growth (as was also learned during the Great Depression): * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... So having the flexibility to grow and shrink the money supply is a Feature and not a Bug for modern economies.
throw0101b 3y ago
> The fed has successfully redefined the word “inflation” to mean “an increase in cost”, which conveniently leaves room to blame others for rising prices. This was not the Fed (entirely), but the entire economic profession as a whole as the dismal science learned more about how things worked. This 1997 paper form the Federal Reserve Bank of Cleveland goes over the development history: * https://www.clevelandfed.org/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation https://www.clevelandfed.org/publications/economic-commentar... * PDF: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation-pdf.pdf https://www.clevelandfed.org/-/media/project/clevelandfedten... This was in response to a better understanding, going back to (at least) Keynes' General Theory of 1936, that the quantity theory of money was not very useful in the first place: > By referring to inflation as a condition of “too much money,” economists were forced to struggle with the operational issue of “how much is too much?” The quantity theory offered a clear answer to that question: Too much money is an in- crease in the money stock that is accom- panied by a rise in the general price level. In other words, an inflated money supply will reveal itself through its effect on the price level. When Keynesian economic theory challenged the direct link between money and the price level, inflation lost its association with money and came to be chiefly under- stood as a condition of prices. As even the Monetarist's monetarist, Milton Friedman, stated himself (Financial Times (UK), 7 June 2003): > The use of quantity of money as a target has not been a success. I'm not sure I would as of today push it as hard as I once did. Not even during the 1980 heydays of right-wing economic thinking under Thatcher and Reagan did anyone bother with monetarism, certainly Paul Volcker didn't. A few chapters on this in Samuelson Friedman by Nicholas Wapshott: * https://wwnorton.com/books/9780393285185 https://wwnorton.com/books/9780393285185 (His book Keynes Hayek is also good.)
bryanlarsen 3y ago
"Inflation is monetary phenomenom" is a quote by Friedman. That he said it that way shows that it was defined as a rise in prices well before he linked the two.

pgwhalen 3y ago

> The original meaning of “inflation” was “an increase in currency supply”. Can you provide a source for this? It seems like an overly monetarist view to me: trying to be assertive about the cause rather than just describing the phenomenon.

deleted 3y ago
[deleted]
Bjartr 3y ago
According to etymonline[1] >Monetary sense of "enlargement of prices" (originally by an increase in the amount of money in circulation) first recorded 1838 in American English. I also found this pdf from the Federal Reserve Bank of Cleveland called On the Origin and Evolution of the Word Inflation[2] that goes into more detail. [1] https://www.etymonline.com/word/inflation https://www.etymonline.com/word/inflation [2] https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation-pdf.pdf https://www.clevelandfed.org/-/media/project/clevelandfedten...
QuesnayJr 3y ago
This is a completely idiosyncratic definition that is advocated for by followers of midcentury economists like Mises. The standard definition of inflation is an increase in the general price level. Of course the size money supply and inflation are related, but they're not synonymous.
- pixl97 3y ago
  Ya, I would imagine if you increased productivity without an increase in monitary supply you'd create deflation. Of course real economic activity is more varied than that so it gets complicated quick.

BoiledCabbage 3y ago

> The original meaning of “inflation” was “an increase in currency supply”. Citation needed. Inflation in economics as far as I know has always meant an increase in prices. Any authoritative place citing this alternate definition being the original?

SantalBlush 3y ago
"On the Origin and Evolution of the Word Inflation" [0] But even this paper explains that the word was well into its evolution during the 19th century, before the Fed existed: >By the late nineteenth century, however, the distinction between “currency” and “money” was becoming blurred. >At the turn of the century, economists tended to refer to any circulating medium as money, and any change in the circulating medium relative to trade needs as an inflation of money. But this shift in meaning introduced another problem. Although it is easy to determine the amount of currency relative to the stock of a precious metal, how does one know when the amount of the circulating medium exceeds “trade needs”? >Economists appear to have reached a definitional crossroads during the first several decades of the twentieth century. Presumably, because they could be certain of the “excessiveness” of the circulating medium only by its effect on the price level, the notions of an inflated currency and prices became inextricably linked. So no Fed conspiracy as far as I can tell. [0] https://www.clevelandfed.org/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation https://www.clevelandfed.org/publications/economic-commentar...

SantalBlush 3y ago

Can you please provide a source that shows the Fed was responsible for redefining the word?

drxzcl 3y ago

It’s becoming increasingly clear that deficit spending is not, in fact, the main driver of inflation. Just look at the recent past. We’ve been deficit spending since 08 without any appreciable inflation. Then fuel and commodities prices surge because of war-induced shortages and BOOM! prices rocket double digits.

amacneil 3y ago
During the past few decades, inflationary forces of deficit spending were offset by deflationary forces of globalization (everything became cheaper as we moved all production to China and other countries). Now we are seeing the effects of that offset being removed.
- AlexandrB 3y ago
  This seems self-contradictory. If inflation is caused by an increase in the money supply, why would lower prices counteract it? It's not like cheap goods reduce the money supply.
  - AnimalMuppet 3y ago
    It's not just the increase of the money supply. It's the increase of the money supply faster than the "stuff" of the economy increases. Globalization didn't just make stuff cheaper. Supply and demand says that the price would not go down (regardless of the cost of manufacturing) if there wasn't more of it than there had been. Globalization increased the "stuff" part of the economy.
    - JackFr 3y ago
      > It's not just the increase of the money supply. It's the increase of the money supply faster than the "stuff" of the economy increases. This. Inflation always is too much money chasing too few goods. Secular shortages give you too few goods. Loose monetary policy (or fiscal policy) give you too much money. (A tight monetary policy can immunize effects of a loose fiscal policy - if there is institutional will.)

deleted 3y ago

[deleted]

deleted 3y ago

[deleted]

jadbox 3y ago

There's no evidence that inflation now or in the last decade has anything to do with deficit spending. It's a favorite talking point of reactionaries because it feels so close to individual finances, but it's far more disconnected. This inflation is primarily caused by global speculative asset/supply changes in world trade markets. https://www.pewresearch.org/short-reads/2022/06/15/in-the-u-s-and-around-the-world-inflation-is-high-and-getting-higher/ https://www.pewresearch.org/short-reads/2022/06/15/in-the-u-...

marcus0x62 3y ago
> This inflation is primarily caused by global speculative asset/supply changes in world trade markets. Where did the money to bid those speculative asset prices up come from?
- drxzcl 3y ago
  Uncertainties in the continued supply were driving up the price of futures. It’s not “let’s bet some free money on the price of gas increasing”. It’s “we need to secure enough gas to keep the factory running next year, let’s buy as much as we can at any price we can reasonably turn a profit at”.
  - marcus0x62 3y ago
    Uncertainties in the continued supply of S&P 500 futures drove up the price of S&P 500 futures? People continued to bid the price of residential real estate up solely because they believed there was a lack of housing starts? Or maybe — just maybe — the ZIRP free money spigot had something to do with it as well.
    - drxzcl 3y ago
      I was referring to the commodities market. The stuff you need to keep your factory running. I agree with you that the financial economy is largely divorced from actual stuff, which is why pumping money into it doesn’t lead to rising prices of stuff, just rising prices of financial instruments. That’s the key here. Increasing the money supply should lead to increase in prices if and only if it is spent on stuff. If it’s squirreled away in complex financial instruments, we just call it “amazing returns”

ajross 3y ago

This is, to be blunt, nonsense. Virtually every economics textbook is going to take pains to explain how those two definitions are effectively identical. You can't have one without the other. Can you cite a reasonable explanation for the perspective you're trying to push? No one thinks this way outside of partisan news media, and even then no one tries to make points with this level of specificity (precisely because it doesn't make sense). And no, it's not about "deficit spending", which is a delta between government spending and government revenue. Money supply has very little to do with the former and quite literally nothing to do with the latter.

lukas099 3y ago
A stable money supply chasing fewer goods (shortage) would also cause inflation.
mminer237 3y ago
Government spending puts money into the economy and taxation takes it out. Sure interest rates affect inflation too through loans and GDP affects the other side, but government deficits are a big part of inflation.
- ajross 3y ago
  > government deficits are a big part of inflation. If they are then you could show me a correlation where periods of high deficits correlate with high inflation. You can't, because if anything the opposite is clearly true over the past 30-40 years. Jumping to declare that this is true now is a bit much, don't you think? Especially since deficit spending hasn't changed trajectory over the past two years as inflation dropped. Again, this is partisan economics. You're repeating stuff that you heard from people with an axe to grind. It's just not correct.
  - mminer237 3y ago
    Deficit spending has dropped tremendously the last couple years, almost perfectly mirroring inflation: https://i.imgur.com/OhHSukq.png https://i.imgur.com/OhHSukq.png Historically there admittedly hasn't been such a trend, but historically we've never printed as much money as we did in 2020 before. I never said it was the only factor. It's also clouded by the fact that if what I'm saying is true, deficit spending is a great course of action when other factors push inflation down. I'm just intuiting stuff from the basics. I haven't really heard anyone opinionate either way on this before, but how could adding 25% more money to the economy not create inflation?

lukas099 3y ago

Increase in cost makes more sense. Increase in currency supply is only one possible cause of costs rising.

monero-xmr 3y ago

It’s amazing how definitively everyone speaks about economic theory, yet intelligent people come to wildly different conclusions. That should make you wonder how definitive you should be. My belief is that inflation at the macro level is always caused by an increase in the money supply, but this also causes debate because the money supply can increase through multiple mechanisms. One is bank lending, another is money printing. The latest inflationary period was caused by money printing - literally dropping money from the helicopter into everyone’s bank account. This is why increasing interest rates hasn’t slowed inflation quickly, because consumers still have a lot of free money handed out to them rather than loans.

throw0101b 3y ago

> The original meaning of “inflation” was “an increase in currency supply”. Debasing the currency supply is why the dollar is worth less and everything costs more. It is the result of deficit spending. Japan enters the chat Japan has been increasing the money supply for decades and yet the inflation rate has remained flat and gone negative more that once: * https://fred.stlouisfed.org/graph/?g=1680i https://fred.stlouisfed.org/graph/?g=1680i Further, you're talking like inflation is entirely bad. While inflation that is "too high" (for some value of "high") is not something most folks want (as was re-learned recently), what's the alternative? Negative inflation rates (deflation) is generally worse (as was learned during the Great Depression). And having zero inflation means having a perfect balance between the supply of money and the current demand needed to run the economy (which is impossible). Having a fix supply of money (like with the Gold Standard), or too little of it, prevents economic growth (as was also learned during the Great Depression): * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... So having the flexibility to grow and shrink the money supply is a Feature and not a Bug for modern economies.

throw0101b 3y ago

> The fed has successfully redefined the word “inflation” to mean “an increase in cost”, which conveniently leaves room to blame others for rising prices. This was not the Fed (entirely), but the entire economic profession as a whole as the dismal science learned more about how things worked. This 1997 paper form the Federal Reserve Bank of Cleveland goes over the development history: * https://www.clevelandfed.org/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation https://www.clevelandfed.org/publications/economic-commentar... * PDF: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation-pdf.pdf https://www.clevelandfed.org/-/media/project/clevelandfedten... This was in response to a better understanding, going back to (at least) Keynes' General Theory of 1936, that the quantity theory of money was not very useful in the first place: > By referring to inflation as a condition of “too much money,” economists were forced to struggle with the operational issue of “how much is too much?” The quantity theory offered a clear answer to that question: Too much money is an in- crease in the money stock that is accom- panied by a rise in the general price level. In other words, an inflated money supply will reveal itself through its effect on the price level. When Keynesian economic theory challenged the direct link between money and the price level, inflation lost its association with money and came to be chiefly under- stood as a condition of prices. As even the Monetarist's monetarist, Milton Friedman, stated himself (Financial Times (UK), 7 June 2003): > The use of quantity of money as a target has not been a success. I'm not sure I would as of today push it as hard as I once did. Not even during the 1980 heydays of right-wing economic thinking under Thatcher and Reagan did anyone bother with monetarism, certainly Paul Volcker didn't. A few chapters on this in Samuelson Friedman by Nicholas Wapshott: * https://wwnorton.com/books/9780393285185 https://wwnorton.com/books/9780393285185 (His book Keynes Hayek is also good.)

bryanlarsen 3y ago

"Inflation is monetary phenomenom" is a quote by Friedman. That he said it that way shows that it was defined as a rise in prices well before he linked the two.