By Tim McMahon
Webster’s 1983 Definition of Inflation
According to Webster’s New Universal Unabridged Dictionary published in 1983 the second definition of “inflation” after “the act of inflating or the condition of being inflated” is:
“An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.
This definition includes some of the basic economics of inflation and would seem to indicate that inflation is not defined as the increase in prices but as the increase in the supply of money that causes the increase in prices i.e. inflation is a cause rather than an effect. But…
Webster’s 2000 Definition of Inflation
The American Heritage® Dictionary of the English Language, Fourth Edition, Copyright © 2000 Published by Houghton Mifflin Company says:
Inflation:
2) A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
In this definition, inflation would appear to be the consequence or result (rising prices) rather than the cause.
Shifty Words
So between 1983 and 2000 the definition appears to have shifted from the cause to the result. Also note that the cause could be either an increase in money supply or a decrease in available goods and services.
Other Definitions
Webster’s Revised Unabridged Dictionary, © 1996, 1998 MICRA, Inc., Relegates Price Inflation to number 3. and says:
Undue expansion or increase, from overissue; — said of currency. [U.S.]
WordNet ® 1.6, © 1997 Princeton University, has a witty definition that says:
inflation 1: a general and progressive increase in prices; “in inflation everything gets more valuable except money” [syn: rising prices] [ant: deflation, disinflation]
According to investorwords.com
The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index; opposite of deflation.
From this page we can see that even Dictionaries don’t agree on the definition of inflation and economists continue to argue over its primary cause. Although it is generally agreed that economic inflation may be caused by either an increase in the money supply or a decrease in the quantity of goods.
Therefore it should be equally obvious that falling prices will result from a decrease in the money supply or a rapid increase in the quantity of available goods. Recent years have seen a virtual explosion of inexpensive goods produced in China and other former Communist Countries. So it is no wonder that we in the United States see falling prices rather than the effects of inflating the money supply in our economy. The opposite of inflation is Deflation.
See Also:
Inflation vs. Consumer Price Index – Do you know the difference?
How Do I Calculate the Inflation Rate?
What is the Velocity of Money?
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About Tim McMahon
My grandfather lived through the Hyperinflation in Weimar, Germany--to say he was an original “gold bug” would be an understatement. I began reading his “hard money” newsletters at the age of 16 and the dividends from gold stocks helped put me through college. I began publishing the Financial Trend Forecaster paper newsletter in 1995 upon the death of James Moore editor of Your Window into the Future and the creator of the Moore Inflation Predictor©. FTF specializes in trends in the stock market, gold, inflation and bonds. In January of 2003, I began publishing InflationData.com to specialize in all forms of information about the nature of Inflation. In 2009, we added Elliott Wave University to help teach you the principles of Elliott Wave analysis. In January 2013, we began publishing OptioMoney. Connect with Tim on Google+.
{ 4 comments… add one }
Question: With regards to the definition of inflation, is the population factored into this calculation? If there are more people today in the United Sates than there were in say the 1960′s, then it seems the per capita availability might be a new variable not previously considered in formulas including inflation. Is this a fair assessment or is this already accounted as a factor?
Ted,
I don’t think population has a major effect on inflation. Prices are a function of the availability goods demand for goods and the money supply. If over night half the population of the world died the demand for goods would be halved but the supply would stay the same. But as a gradual increase in the population manufacturers only produce what they know they can sell so it tends to balance out in a relatively short time.
I’m not sure it is the Fed’s influence. Maybe it is just the dumbing down of our educational system. In the “microwave generation”- all that matters is the end result- people aren’t interested in what caused it anymore. Too much trouble to think for ones self just take the koolaide (or Ritalin) and be quiet.
Finally, someone with some common sense! I had this conversation with my father a few years ago before he passed on. He spent his entire career in the finance and banking industry. When I first told him of Irwin Schiff’s definition of inflation, my father rebuked me, saying that inflation was a rise in prices. As you mentioned, he had switched cause and effect. He finally got out one of his old college textbooks and looked up the definition from the 1940s era. He came back to me and agreed that inflation is, indeed, any increase in the money supply?
Why are today’s economists so out of touch with reality? Do you believe it is the Federal Reserve’s influence on banking that has created this imbalance? That’s my theory. Maybe you have another.