Recently, I debated an apparent economist who tried to educate me that the usage of inflation, in his opinion, must refer to the increase of prices. I stated my strong opposition to this usage by explaining that this usage is inconsistent with the word’s imagery, and that this usage fostered an inconsistent framework of the reality of the economy. After a protracted banter, he retreated in disgust and slammed me as being dogmatic.
Perhaps, I was truly dogmatic? Or was I merely ferociously arguing my point of view? However, it seems backwards to categorize me this way when I’m merely presenting arguments to refute the prevailing dogma. Although it was a one-on-one debate, he had the virtual support of the multitude who have gotten economic degrees and jobs for the past 50 years in a heavily inculcated population of devotees. In a sense, I was outnumbered and shouted down. I was the proverbial Jesus against the Pharisees.
Within our discussion, he protested that inflation can mean to increase. This is correct. And this protest increased my motivation to delve deeper into inflation’s multiple meanings as well as its origins.
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I can sometimes predict that critics of my stance to reserve inflation for only the expansion of the money supply will whine that it applies equally well to the increase of commodity prices with the assertion that the verb, inflate, is synonymous with the verb, increase. Superficially, these critics are correct. And my insistence for my biased usage makes me to seem arbitrary, although being arbitrary is sometimes useful. And let’s not forget that arbitrary and arbitration make for strange bedfellows.
But if you analyze the two words (inflation and increase), they are similar only in a general context and not in a specific, technical context.
To compare inflate to increase in a context that draws out their technical distinctions, imagine that I have a bicycle tire and I state the imperative (without the article, the) for you to:
“Increase tire…”
This does not provide a clear message as to what is expected of you.
Does it mean for you to obtain a tire?
Does it mean for you to obtain additional tires to add to the one I already have?
Does it mean for to increase the circumference or thickness or tread of the tire?
If you appear puzzled and I change my command to:
“More tire…”
Or
“Make more tire… ”
We have the same confusion.
But if I say:
“Inflate the tire…”
You know exactly what is expected.
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If we consult several dictionaries, inflate is firstly defined to mean to expand, to distend, to swell, to dilate, or to balloon a thing or substance. As a secondary definition, and sometimes not mentioned, it means to increase.
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Then I proceeded to the etymology of inflation, and to my surprise and delight I found that its original usage in the field of economics was restricted for the expansion of the money supply and NOT to the increase in prices. Its original usage was in 1838. I found two separate references for this. I’m expect that there are more to be found.
Noting that, originally, although the expansion of the money supply was the cause of the increase in prices, the cause and effect were eventually blurred together and the effect was eventually called inflation. It seems that all this confusion was the result of so-called political economics. It also seems that Keynesian Economic Theory strongly encouraged this blurring, but I’m no expert on the details of this history.
So, we have both precedent as well as first-usage for inflation to exclusively denote the expansion of the money supply.
My diligence was rewarded as I chanced upon the 1997 article, On the Origin and Evolution of the Word Inflation, by Michael F Bryan of the Federal Reserve Bank of Cleveland, Economic Commentary. It provides an excellent history. Please read
On the Origin and Evolution of the Word, Inflation
My only slight disappointment with Bryan’s treatise is his failure to mention that the phrase, “…not worth a Continental…” comes from the inflation of the bills issued by the Continental Congress. John Pugsley often includes this in his presentations.
Proximate Cause
Proximate cause is the temporal relationship between a cause and a supposed effect of that cause. If I get a vaccination and drop dead within seconds of the injection, it is somewhat safe to conclude that there is a cause-effect relationship between the two events.
But if I drop dead two years after the vaccination, my death is said to lack proximate cause related to the vaccination.
I suspect that inflation has erroneously come to mean the increase in prices as the proximate cause is poor. As I have explained in other writings, the time lag between the cause and the effect is [usually] so long that consumers are easily deceived into accusing their more proximate (recent) trade interactions.
I commonly hear it stated to the effect that, “Our present high inflation arrived exactly when Biden took office.” In many peoples minds, this proves proximate cause. This not correct because the delay between government deficit spending and the rise of prices due to that spending is so vast.
Inflation is like Sex; Rising Prices is Like Pregnancy
Although difficult to believe, we hear of primitive peoples who have not associated sexual intercourse with pregnancy. I suppose that since the temporal relationship between an isolated copulation and the female’s body beginning to swell is poor proximity to the extent that the association is missed.
The principle of proximate cause is sometimes politically useful. Additionally, the conflation of terms makes deflection, spinning, obfuscation, and deception easy ploys on the unawares by governments as well as by private industry.
Satisfaction from Bryan’s Article
Bryan’s article provides us with a history that inflation’s first usage was specifically and restrictively for the expansion of the money supply. And his last paragraph supports my bias that the economic framework would be better served with this as a rigid convention.
I have updated this to enable the link to the embedded article by Michael F. Bryan.
Hi Ken
Thank you
I have subscribed to your substack. I was unaware you had been writing here.
You may be interested to read Reisman's Capitalism, it is available for free on his website.