Mises Wire
Inflation Isn't What the "Experts" Say It Is. The Confusion in Terms Is Deliberate
Tags Central BanksInflationAs such, from the statist economics standpoint, the definition of inflation had to be distorted and the public miseducated about it —so that the process of currency debasement (i.e., monetary inflation) may go unnoticed and accepted by those whom it hurts the most, the general pupation.
Definition of inflation
The popular and textbook definition of inflation is a generalized rise in the prices of goods and services. Commonly measured by the Consumer Price Index (CPI). This definition is not wrong per se but it is inaccurate and grossly misleading. Deliberately so.
The original and more accurate definition of inflation is the artificial increase in the supply of money (and credit). By artificial it is meant that the expansion of the supply of money is not determined by the market (i.e., the people) but rather by the government, usually through a central bank.
Deliberate distortion
The original definition of inflation has been distorted for two principal reasons. First, the government and its monetary agency—the central bank—shield themselves from any future blame for the continuing rise in prices and the currency loss of purchasing power that inevitably happens as a result of inflationist monetary policy. This enables the government and mass media outlets to divert the blame to something or someone else. The usual scapegoats being “greedy businessmen” or “corporations.”
What’s more unsettling is the same report found that the majority of those polled also believe that the government should step in and resolve the problem. In other words, the public wants the causer of the problem to solve the problem.
Such is the depth of economic misinformation and miseducation we face. Perhaps, if the public knew that since the establishment of the current US central bank in 1913, the dollar lost more than 95 percent of its purchasing power relative to gold (the commodity that gave the dollar its initial value, stability and global acceptability), they wouldn't blame the inflation crisis on “corporate greed”.
The government’s monetary agency and the current fiat money system are the cause for today’s increasingly inflationary and chaotic monetary situation. Not corporate greed, speculators, free-market capitalism, Vladimir Putin, or the weather.
Under a fiat currency regime, the central bank can easily, artificially and systematically increase the money supply, almost like a magic trick, which makes inflation (mild or severe) the norm. And this inflationary process gradually destroys the purchasing power of the currency resulting in higher prices. This policy, while benefiting the government and associates, defrauds the people and impoverishes society, economically and morally.
Economist Hans F. Sennholz noted:
It is not money, as is sometimes said, but the depreciation of money—the cruel and crafty destruction of money—that is the root of many evils. For it destroys individual thrift and self-reliance as it gradually erodes personal savings. It benefits debtors at the expense of creditors as it silently transfers wealth and income from the latter to the former. It generates the business cycles, the stop-and-go boom-and-bust movements of business that inflict incalculable harm on millions of people.
Professor Sennholz further noted:
Monetary destruction breeds not only poverty and chaos, but also government tyranny. Few policies are more calculated to destroy the existing basis of a free society than the debauching of its currency. And few tools, if any, are more important to the champion of freedom than a sound monetary system.
Conclusion
Nowadays it makes sense to use the terms monetary inflation to specify the artificial increase of the money supply, on one hand. And use price inflation to refer to a generalised rise in prices of goods and services on the other.
Irrespective of the confusion in definition, inflation stealthily distorts and debilitates the economy, steals the people's purchasing power and impoverishes society while benefiting the ruling political and business elites.
History (and common sense too) makes it clear that fiat currency regimes are unsustainable arrangements that always and inevitably fail. As such, there is no reason to believe today’s cruel and oppressive fiat currency regime will defy Natural law to stand the test of time.