Saturday, September 7, 2019

Is There Such a Thing as 'Price Inflation'?

An EPJ reader emails in response to the post: Austrian-Lites Have No Clue
Subject: Clueless

The fact that you say "price inflation" in your article demonstrates how truly ignorant of economics you are.  Prices don't inflate, they go up and down.  Inflation is an expansion in the supply of money and/or credit.

If you're going to criticize others, you should at least sound like you know what you're talking about.

The RW response to Jimmy:

Words evolve over time and their meanings can change.

From Science Magazine:
Some linguists think of language as a living thing: It grows and changes, and every time a child learns it, the language reproduces itself. Now, a team of researchers is using the analogy of evolution to explain language change, arguing that key factors in biological evolution—like natural selection and genetic drift—have parallels in how languages change over time. And it turns out that the random changes, known as “drift” in biology, may have played an outsized role in the evolution of the English language.
From TED:
Words change meaning all the time — and over time. Language historian Anne Curzan takes a closer look at this phenomenon, and shares some words that used to mean something totally different....Words have been changing meaning — sometimes radically — as long as there have been words and speakers to speak them. Here is just a small sampling of words you may not have realized didn’t always mean what they mean today.
  1. Nice: This word used to mean “silly, foolish, simple.” Far from the compliment it is today!
  2. Silly: Meanwhile, silly went in the opposite direction: in its earliest uses, it referred to things worthy or blessed; from there it came to refer to the weak and vulnerable, and more recently to those who are foolish.
  3. Awful: Awful things used to be “worthy of awe” for a variety of reasons, which is how we get expressions like “the awful majesty of God.”
  4. Fizzle: The verb fizzle once referred to the act of producing quiet flatulence (think “SBD”); American college slang flipped the word’s meaning to refer to failing at things.
  5. Wench: A shortened form of the Old English word wenchel (which referred to children of either sex), the word wench used to mean “female child” before it came to be used to refer to female servants — and more pejoratively to wanton women.
  6. Fathom: It can be hard to fathom how this verb moved from meaning “to encircle with one’s arms” to meaning “to understand after much thought.” Here’s the scoop: One’s outstretched arms can be used as a measurement (a fathom), and once you have fathoms, you can use a fathom line to measure the depth of water. Think metaphorically and fathoming becomes about getting to the bottom of things.
  7. Clue: Centuries ago, a clue (or clew) was a ball of yarn. Think about threading your way through a maze and you’ll see how we got from yarn to key bits of evidence that help us solve things.
  8. Myriad: If you had a myriad of things 600 years ago, it meant that you specifically had 10,000 of them — not just a lot.
  9. Naughty: Long ago, if you were naughty, you had naught or nothing. Then it came to mean evil or immoral, and now you are just badly behaved.
  10. Eerie: Before the word eerie described things that inspire fear, it used to describe people feeling fear — as in one could feel faint and eerie.
  11. Spinster: As it sounds, spinsters used to be women who spun. It referred to a legal occupation before it came to mean “unmarried woman” — and often not in the most positive ways, as opposed to a bachelor …
  12. Bachelor: A bachelor was a young knight before the word came to refer to someone who had achieved the lowest rank at a university — and it lives on in that meaning in today’s B.A. and B.S degrees. It’s been used for unmarried men since Chaucer’s day.
  13. Flirt: Some 500 years ago, flirting was flicking something away or flicking open a fan or otherwise making a brisk or jerky motion. Now it involves playing with people’s emotions (sometimes it may feel like your heart is getting jerked around in the process).
  14. Guy: This word is an eponym. It comes from the name of Guy Fawkes, who was part of a failed attempt to blow up Parliament in 1605. Folks used to burn his effigy, a “Guy Fawkes” or a “guy,” and from there it came to refer to a frightful figure. In the U.S., it has come to refer to men in general.
  15. Hussy: Believe it or not, hussy comes from the word housewife (with several sound changes, clearly) and used to refer to the mistress of a household, not the disreputable woman it refers to today.
  16. Egregious: It used to be possible for it to be a good thing to be egregious: it meant you were distinguished or eminent. But in the end, the negative meaning of the word won out, and now it means that someone or something is conspicuously bad — not conspicuously good.
  17. Quell: Quelling something or someone used to mean killing it, not just subduing it.
  18. Divest: 300 years ago, divesting could involve undressing as well as depriving others of their rights or possessions. It has only recently come to refer to selling off investments.
  19. SenileSenile used to refer simply to anything related to old age, so you could have senile maturity. Now it refers specifically to those suffering from senile dementia.
  20. Meat: Have you ever wondered about the expression “meat and drink”? It comes from an older meaning of the word meat that refers to food in general — solid food of a variety of kinds (not just animal flesh), as opposed to drink.
The word "inflation" to an economist once had a very technical meaning, an increase in the supply of money. But this meaning does not hold amongst mainstream economists today.

From Macroeconomics (2013) by Krugman and Wells:
Inflation a rise in the overall price level.
From Principles of Macroeconomics (2015) by Greg Mankiw:
Inflation an increase in the overall level of prices in the economy. 
From Economics (1948) by Paul Samuelson:
By inflation we mean a period of generally rising prices.
And just this past Wednesday, New York Federal Reserve Bank President John C. Williams, spoke before the Euromoney Real Return XIII: The Inflation-Linked Products Conference 2019 in New York City and said:
 Low inflation is indeed the problem of this era.
It is beyond question that the word "inflation" as used in the title of the Euromoney conference and as used by Williams in his speech were both referencing an increase in general prices.

In the Merriam-Webster Dictionary, the word inflation is defined, when used in the economic sense, as follows:
 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 services
 It is clear the meaning of the word has evolved.

Since words are used to communicate, it is just awful (in the modern sense of the word "awful") to be stubborn and use words that have long ago changed in meaning. It confuses the public as to the point one is attempting to get across.

That said, I recognize that it is important to discuss increases in the money supply because of the important role such increases have in creating the business cycle, for one. And it is clumsy to write "increase in the money supply" all the time. Thus, I will often use "monetary inflation" to refer to an increase in the money supply to signal to the reader that I am discussing inflation in a different sense from the now mainstream use of the word.

I will also use "price inflation" rather than just inflation when discussing increases in general prices so that I can convey  A. that I am discussing increases in general prices and B. there is some other sense that the word "inflation" can be used in economics. ( It was Harry Browne who first differentiated and used "price inflation" and "monetary inflation.")

In doing this, one is writing in a fashion the general reader can understand while hinting there is more to the story, rather than sticking to an outdated use of the word that will confuse not only all of the general public but also most economists. 

If the goal is to communicate clearly, this is what we must do. If the goal is to obfuscate, then sticking to a definition of inflation (without the adjective "monetary") as an increase in the supply of money, will do the damage.

It is truly silly (in the modern usage of the word "silly") to battle to return to a definition that has gone so far out of use. Austrian economists have many deep battles to engage with mainstream economists, is there really any reason to extend the battle to reverse a definition that is commonplace when we can make the point in a manner that the mainstream can understand by employing the adjectives "monetary" and "price" and then go on to bigger and more important battles?

If  one believes one can reverse the tide of a meaning so far gone, one should heed the words of William Shakespeare:
Sometimes we are devils to ourselves
When we will tempt the frailty of our powers


  1. Replies
    1. Hey, you made it! That's awful---er, I mean, awesome! I bet you have some stories to tell...

  2. I still make the effort to distinguish between "inflation" and "price inflation," being sure to make clear that the latter is a resulting byproduct of the former.