The Dollar's Value

[NigelW]

Hello,

 

I'm trying to get to the heart of what inflation is.

 

Inflation is an increase in prices and fall in the purchasing value of money. In Canada, inflation is measured through Price Indices. The price of a group of goods over time can increase or decrease. The percentage in increase is inflation.  If the prices of the products used to measure inflation are being lowered through subsizing then the natural increase in price from money printing would be less significant. It's my guess that the higher the inflation is the more subsides are required to keep prices down, especially for products used to measure inflation.

 

Does someone with more economic experience know if I'm on the right track? Do subsidies and money printing go hand in hand?

[webdever]

https://wiki.mises.org/wiki/Inflation

 

Inflation is an increase in the volume of the money supply. More money moving around means the purchasing power of a dollar falls. 

 

Prices and goods can rise and fall without being related to an increase in the money supply, like how the price of computers tends to fall even though the currency is inflating.

[NumberSix]

Inflation has 2 different definitions, the generally accepted version is a rise in prices as you describe. The Austrian school of economics defines it as an increase in the money supply, just as a balloon is inflated with air; the money supply is inflated by printing money.  Subsidies may keep prices down, it may also create artificial demand; you need a specific example to check the facts. There is so much manipulation of economies by western governments; you can’t really know the cause of problems without doing deep research.

[webdever]

Inflation has 2 different definitions, the generally accepted version is a rise in prices as you describe. The Austrian school of economics defines it as an increase in the money supply, just as a balloon is inflated with air; the money supply is inflated by printing money.  Subsidies may keep prices down, it may also create artificial demand you need a specific example to check the facts. There is so much manipulation of economies by western governments; you can’t really know the cause of effects without doing deep research.

 

See the section on the historical development of the term inflation I posted above.

 

The term "inflation" as defined by the British Currency School was used strictly to denote an increase in the supply of money that consisted in the creation of currency and bank deposits unbacked by gold. It became accepted in the English-speaking world from the mid-nineteenth century.

However, because the writers of the British Currency School neglected to consider bank deposits as part of the money supply, their policies as adopted in Great Britain failed to prevent inflation and the business cycle. The School’s doctrines and policies fell into profound disrepute by the late nineteenth century, and its definition of inflation was replaced by that of the opposing Banking School, which saw inflation as a state in which the money supply exceeds the needs of trade. From there it was a short step to the currently prevailing definition of inflation as an increase in the price level.^[7]

Overview of dictionary definitions of the term "inflation":^[8]

 

Samuel Johnson’s 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.

 

 

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, 2003, 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

 

 

 

 

 

 

Up until very recently, the definition of the term inflation at least was related to an increase in the supply of currency. When you think about it, the term doesn't even make much sense to use 'inflation' to mean 'prices increasing'. The non-economics definition of inflation, like you said, means for the volume of something to expand, as in a balloon with air. 

[Alan C.]

The mainstream definition of inflation is an increase in prices.

 

Austrian economists correctly define inflation as an increase in the money supply, which results in a decrease in its purchasing power.

 

It's possible for prices to decline while the purchasing power of the currency declines simultaneously. This can be observed in computers and electronics. When prices decline during inflation, the currency debasement is concealed, and advances and refinements in production do not redound to the consumer in their entirety. It means that our standard of living isn't as high as it would otherwise be.

[NigelW]

Okay, the definition for the inflation of the money supply makes sense.

 

I have had a very difficult time finding any statistics on Canada's money supply and price indices. There is an equation used to calculate inflation using price indices, but I wonder if inflation can be more accurately measured using the percentage increase/decrease in the money supply.

 

The reason this is important to me is that I've justified a salary adjustment due to inflation. If the percentage increase in the money supply is higher than what is measured in the CPI, then I should be able to ask for a larger raise.

 

Err, maybe I've lost my marbles. Anyone have a clue?