Monday, May 16, 2011

WSJ Delves Deeper into the Meaning of the Word "Inflation"

Following up on my discussion of the use of the word, "inflation", and, I guess, to really emphasise the fact that meaning of words change over time, WSJ provides this somewhat useful guide as to how the meaning of the word  has changed over time:

Samuel Johnson’s famous A Dictionary of the English Language, published in 1755, had just one definition for inflation:


The state of being swelled with wind; flatulence.

Webster’ American Dictionary of the English Language, published by G&C Merriam Co. in 1864, was the first to formally define inflation as an economic term:


undue expansion or increase, from over-issue; — said of currency.

Century Dictionary, a well-regarded American dictionary published from 1889 to 1891, defined inflation this way:

Undue expansion of elevation; increase beyond the proper or just amount of value: as, inflation of trade, currency, or prices; inflation of stocks (that is, the price of stocks).

In 1901, the sixth volume of the Oxford English Dictionary (letters H through K) defined inflation this way:

Great or undue enlargement; increase beyond proper limits; esp. of prices, the issue of paper money, etc.

Webster’s New International Dictionary, published in 1909, defined inflation as:

Undue expansion or increase, as in paper currency, prices, etc.

In the second edition of Webster’s New International Dictionary, published in 1934, the definition of inflation was greatly inflated:


Disproportionate and relatively sharp and sudden increase in the quantity of money or credit, or both, relative to the amount of exchange business. Such increase may come as a result of unexpected additions to the supply of precious metals, as in the period following the Spanish conquests in Central and South America or the period following the opening up of large new gold deposits; or it may come in times of business activity by expansion of credit through the banks; or it may come in times of financial difficulty by governmental issues of paper money without adequate metallic reserve and without provisions for conversion into standard metallic money on demand. In accordance with the law of the quantity theory of money, inflation always produces a rise in the price level.

A Dictionary of American English on Historical Principles, published by the University of Chicago Press in four volumes from 1938 to 1944, was more succinct:


of money and prices: overexpansion

Webster’s Third New International Dictionary, published in 1961, was reviled in editorial pages of newspapers around the country for what was seen as its permissive approach to the language. Its inflation definition:

An increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.

The second edition of the Oxford English Dictionary, published in 1989, defines inflation as:

Great or undue expansion or enlargement; increase beyond proper limits; esp. of prices, the issue of paper money, etc. spec. An undue increase in the quantity of money in relation to the goods available for purchase; (in lay use) an inordinate rise in prices.

In the eleventh edition of Merriam-Webster’s Collegiate Dictionary, inflation was no longer defined as an expansion in money and credit. Rather it is:


a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and service
Bottom line: As I discussed in my earlier post, the meaning of words can change over time. Given the public use of the term "inflation" to mean a general increase in the price of goods, and the value of using "inflation" to mean, more technically, an increase in the money supply, the best thing to so is to differentiate the two meanings by identifying the meaning under discussion more clearly, that is, use "price inflation" to mean an increase in the general price level and "monetary inflation" when discussing an increase in the money supply.

5 comments:

  1. Or perhaps we need a name for the manifestation of inflation in prices? Especially given that prices may not actually change but still be impacted by inflation. The term "inflation" no matter how it is qualified simply communicates the wrong idea when referring to prices.

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  2. From my uneducated reading of this, the public's interpretation of (price) inflation is actually the symptom of the market's response to (monetary) inflation right? The price goes up because more dollars are chasing fewer goods. The public is talking about the "visible" effect while economists are looking at the "unseen" cause.

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  3. I have been advocating for years for us to give up the term "inflation" to those who mean price increases and start referring to funny money creation as "money dilution". It gets the (supposedly obscure) cause-and-effect across quite quickly and painlessly.

    As in "Today in Washington, The Ben Bernank announced plans for further dilution of the nation's money supply".

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  4. While any asset class can inflate due to speculation induced or other demands. General inflation that includes wage inflation doesn't generally happen with 9% unemployment.

    We've been 'printing'[sarc] money for some time now so how's the U.S. money supply doing? See below:

    http://pragcap.com/global-money-supply-vs-growth

    If this is confusing to you then maybe you should check out Minsky and MMT.

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  5. "If this is confusing to you then maybe you should check out Minsky and MMT. "

    It isn't, and MMT is claptrap anyway. So no thanks.

    ReplyDelete