Thursday, August 8, 2013

Austrians and the Definition of “Inflation”

Certain Austrians are running to defend their idiosyncratic definition of “inflation” as an increase in the money supply, instead of (as people normally use it) a general increase in prices.

The fact is that the word “inflation” has always been used to describe a general increase in prices, as well as an expansion of the money supply. This can be clearly seen to anyone who does a few minutes of searching on Google Books for the word “inflation” in the 19th century.

Even in the 19th century, people frequently spoke of an “inflation of the currency” or “inflation in (the) currency” and “inflation of prices” or “inflation in prices.” These expressions appear in the English language from about 1834. When referring to monetary expansions, people in the 1800s also often used the phrases “expansion of credit,” “over-issue of credit,” or “over-issue of (the) currency,” and so on.

Just looking at this graph of usage (better viewed in a separate window) from a search on Google Ngram Viewer, the expression “inflation of prices” is very common in the 19th century, and in some years more common than the expression “inflation of the currency.” As already noted, both appear around 1834.

Furthermore, as we can see in this next graph, the expression “inflated prices” appeared in the late 1790s at the time of the French Revolutionary wars, and so the use of the cognate word “inflated” in an economic sense referring to prices preceded the phrases above.

Even single uses of the word “inflation” in sources from the 1800s can have either meaning, depending on the context.

Examples of “inflation” in the sense of “price inflation” are easy to find:
“The question recurs, what were the causes of the unusual mania of speculation — the excessive and long continued inflation of prices, and the confidence that this inflation, after it was known to be excessive, would continue, and the expectation that it would still further increase?”
Nathan Hale (ed.), Chronicle of Events, Discoveries, and Improvements, for the Popular Diffusion of Useful Knowledge Nathan Hale. S. N. Dickinson, Boston. 1840. p. 11.

“Now, however, without any inflation, and in some important articles under a contraction of prices, the excess of exports is not only more than was ever known before, but quite threefold greater, ...”
William Hanby Crump, The World in a Pocket Book: Or, Universal Popular Statistics. J. Dobson, Philadelphia, 1841. pp. 118–119.

“The expression ‘war prices,’ so commonly used in the past, implied the inflation in values of all kinds of property rated in such representative money, the volume of money largely controlling the degree of inflation in values, but not absolutely, ... ”
John Smith, Hard Times: A Few Suggestions to the Workers and a Broad Hint to the Rich. 1885. p. 45.

“But such a currency so handled cannot cause inflation. Prices remain, as before, at the gold level.”
Littell’s Living Age, Volume 186, T.H. Carter & Company, 1890. p. 648.

Taking inflation to mean a rise in prices, unaccompanied by a corresponding rise in values, inflation can never be brought about by a mere increase in the volume of gold employed in commerce.”
Blackwood’s Edinburgh Magazine, Volume 149, 1891. p. 401.

This increase in prices we call inflation, and I do not understand how such an inflation can be repudiated, as has been done to day, while the entire remedy proposed, imaginary or real, evidently is intended to produce a notable increase of prices called forth by inflation.”
Berlin Silver Commission, 1894: Proposals Submitted and Debate on the Proposals. Report of the Proceedings, to which is Appended the Report of the Proceedings of the International Bimetallic Conference at London May 2 and 3, 1894, Volume 2, U.S. Government Printing Office, 1895. p. 775.


  1. If they insist on using the money supply they should at least divide by the goods supply. What they will then get is the good ole GDP deflator.

  2. If inflation were to mean nothing more than an increase in money supply without a necessarily accompanying increase in price level, then why would anyone give a damn? Why is the quantity of currency in circulation of more importance than purchasing power per unit of labor?