Monday, August 4, 2014

The Original Economic Use of the Word “Inflation”?

When and what was the first occurrence of the word “inflation” in English in an economic sense?

The earliest example in the Oxford English Dictionary (s.v. “inflation,” sense 6) comes from 1838, but that is clearly not the earliest occurrence.

After quite a bit of research on Google books, this appears to be the earliest I can find, and it occurs in the English translation of Jean Baptiste Say’s A Treatise on Political Economy (1821):
(1) “The experience of English commerce has, however, proved, that a casual inflation of the price of domestic, and depression of that of external products, may be the basis of permanent commerce.”
Say, Jean Baptiste. 1821. A Treatise on Political Economy; or, The Production, Distribution, and Consumption of Wealth (vol. 1; trans. by C. R. Prinsep from 4th French edn.). Longman, Hurst, Rees, Orme, and Brown, London. p. 176.
Of course, I may well be wrong, and welcome anyone who can prove me wrong.

At around the same time, the participle “inflated” was being used in an economic sense too and was applied to prices:
(1) “The permanent advance, therefore, was very little short of what has been deemed the inflated or speculative price of the present bank. …. This inflated price, therefore, was very little higher than the level stationary price of the stock of the late bank of the United States.”
from John Sergeant’s “Speech on the Bank of the United States,” delivered in the House of Representatives. February 22, 1819 in H. Niles (ed.). Supplement to Volume the Sixteenth of Niles Weekly Register. Franklin Press, Baltimore. 1819. p. 138.

(2) “We have hitherto regarded the inflated price of grain as the only evil to be apprehended. But England, in 1815, was alarmed by a prospect of an opposite evil; viz, that its price would be reduced too low, by the influx of foreign grain.”
Say, Jean Baptiste. 1821. A Treatise on Political Economy; or, The Production, Distribution, and Consumption of Wealth (vol. 1; trans. by C. R. Prinsep from 4th French edn.). Longman, Hurst, Rees, Orme, and Brown, London. p. 296.
In short, the earliest examples of “inflation” and “inflated” seem to refer to prices, not money supply or currency inflation, despite libertarian claims to the contrary.

BIBLIOGRAPHY
Niles, H. (ed.). 1819. Supplement to Volume the Sixteenth of Niles Weekly Register. Franklin Press, Baltimore. 1819.

Say, Jean Baptiste. 1821. A Treatise on Political Economy; or, The Production, Distribution, and Consumption of Wealth (vol. 1; trans. by C. R. Prinsep from 4th French edn.). Longman, Hurst, Rees, Orme, and Brown, London.

13 comments:

  1. "the earliest examples of “inflation” and “inflated” seem to refer to prices, not money supply or currency inflation"

    As I pointed out, it's only an excessive increase in the money supply (supply greater than demand) that would be considered to be 'inflation' by von Mises. This means you can only really know if inflation has occurred, according to Mises, if prices rise. Until they rise, you would just be speculating or guessing that an observed increase in the supply of money would be 'inflationary'.

    Mises often asserted that increases in the money supply would be excessive and thus inevitably raise prices, which led him to assert that substantial increases in the money supply were themselves 'inflation'. This, combined with Mises occasional vagueness and his tendency to exaggerate and simplify for rhetorical effect (so as to push his political agenda more forcefully) has generated a lot of confusion among fans of 'austrian economics'.

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    1. Yes, as you rightly say, a lot of the modern Austrians have lost Mises' more subtle definition of inflation:

      “Inflation is an increase in the quantity of money without a corresponding increase in the demand for money, i.e., for cash holdings.”
      http://www.fee.org/publications/detail/the-free-market-and-its-enemies#axzz2mXfFRfH7
      --------------
      At least Mises gave some thought to the demand to hold money.

      If Austrians in 2008 and afterwards, even with their simplistic models, had given some thought to how the banks wanted to hold most of their new money reserves at the Fed because of uncertainty and bad balance sheets, the Austrians wouldn't have been so quick to make their disastrous predictions of hyperinflation.

      Of course, if they had learned about the widespread existence of mark-up prices, endogenous money, and dispensed with the money multiplier myth too, this would have helped too!

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    2. On an unrelated note, it is interesting to see how Ken B's return at Free Advice has provoked the most absurd responses from Murphy and co.

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    3. I'm taking a break from that madhouse for the time being.

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  2. Hmm... Some very brief research confirms that this term does seems to have appeared in the early-19th century. I have found an interesting use of it by Thomas Tooke whereby he is discussing financial speculation through the over-expansion of speculative credit:

    "The rise of prices in 1835-6 was mainly the conse-
    quence of an extraordinary demand, arising from a
    spirit of speculation which had its origin in America,
    and to which an infatuated confidence of the houses
    here in that trade, ministered by unbounded credits.
    A collapse of credit, as the ultimate result of such
    a previous inflation of it, is so obviously an inevitable
    necessity, as to supersede any call for explanation."

    https://archive.org/stream/inquiryintocurre00tookuoft/inquiryintocurre00tookuoft_djvu.txt

    This is from 1844.

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    1. Yes, I should have also mentioned that the use of "inflation" in the sense of monetary/currency/credit inflation also appears in the early 19th century, and alongside the use in the sense of inflation in relation to prices. Both are regular uses in the 19th century.

      But the question is: what was the first occurrence of its use in an economic sense?

      The 1821 use in Say is the earliest I can find.

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    2. inflation of money or 'monetary inflation' seems to have always referred to 'excessive' issue of money... with excessive meaning leading to a fall in the value of money, i.e. a rise in prices.

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  3. I should also say, the best way to get at this is to find the etymology of the word. What I mean by that is to figure out where the metaphor was taken from. The online etymological dictionary indicates that the origin was medical.

    http://www.etymonline.com/index.php?term=inflation&allowed_in_frame=0

    I would imagine that late 18th century chemistry and physics experiments probably gave a new meaning to the word which then transferred into economic discourse.

    According to my Chamber etymological dictionary it was first recorded in the US in a speech by this guy in 1838:

    http://en.wikipedia.org/wiki/Daniel_D._Barnard

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  4. Interestingly some will point to an 1802 Jefferson quote with suspiciously Austrian overtones. But it appears to be a fraud.

    http://www.monticello.org/site/jefferson/private-banks-quotation

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    1. Yes, that doesn't read like 1802 English to me!

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  5. I had believed this paper: On the Origin and Evolution
    of the Word Inflation
    , still the only one I can find on the topic, but your discoveries seem to disprove his and the Austrian contentions.

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    1. I am not sure the paper is really by an Austrian, but, yes, it is wrong.

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  6. Interesting that all of these occurrences seem to come from a few years after 1819. Daniel Walker Howe's What Hath God Wrought (limited to American history, admittedly) identifies the downturn that year as the first cyclical downturn that the public had experienced, with no obvious cause from food shortages, war, and so on. I would wager the same was true in England. I wonder if the Dutch or French coined words for inflation following their earlier experiences with speculative manias.

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