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.

Jean Baptiste Say on Failures of Aggregate Demand

In modern formulations of Say’s law (or the “law of markets”), there are two main variants of it, as follows:

(1) Say’s Identity
According to Baumol (1977: 146), this

“is the assertion that no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value.”

(2) Say’s Equality
Again, according to Baumol (1977: 146), Say’s Equality

“admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together.

Say’s Identity requires that no failures of aggregate demand can occur, as money is not held for significant periods of time and factor payments from aggregate supply are spent in aggregate demand (either in consumption or investment). Thus in particular commodity markets there might be excess supply, but overall there is “zero value of the sum of excess demands” (Kates 2003: 45). It appears that James Mill and John Ramsay McCulloch both used Say’s Identity and Say’s Equality in their writings (Blaug 1996: 150).

There is a question here about whether Jean Baptiste Say ever expressed his “law of markets” as Say’s Identity. This is complicated by the fact that there was more than one edition of his Treatise on Political Economy. The second edition of the Treatise on Political Economy was published in 1814 and has a revised version of Say’s law (Baumol 1977: 147), while in the first edition the law of markets is not nearly so complete. It was only in the second edition of the Treatise on Political Economy (1814) that Say’s discussion is identifiable as a “form of a type of Say’s equality, i.e., supply and demand are always equated by a rapid and powerful equilibration mechanism” (Baumol 1977: 159). Indeed, Jean Baptiste Say even criticised Ricardo for using a version of the law of markets we would recognise as Say’s Identity (Blaug 1996: 150). The second version of the law of markets – Say’s Equality – is obviously a far weaker version of it, for it admits the possibility of short term failures of aggregate demand, even if a long run inequality between aggregate supply and demand is denied.

A relevant passage by Jean Baptiste Say on this issue occurs in one of his letters to Malthus:

“Mr. Ricardo insists that, notwithstanding taxes and other charges, there is always as much industry as capital employed; and that all capital saved is always employed, because the interest is not suffered to be lost. On the contrary, many savings are not invested, when it is difficult to find employment for them, and many which are employed are dissipated in ill-calculated undertakings. Besides, Mr. Ricardo is completely refuted not only by what happened to us in 1813, when the errors of Government ruined all commerce, and when the interest of money fell very low, for want of good opportunities of employing it; but by our present circumstances, when capitals are quietly sleeping in the coffers of their proprietors. The bank of France alone possesses 223 millions of specie in its chests, more than double the amount of its notes in circulation, and six times what it would be prudent to reserve for the ordinary course of its payments.” (Say 1821: 49; it was also published in New Monthly Magazine, Volume 14 [1820, October 1], p. 368ff.).

What we have here is:

(1) a recognition that money savings will not necessarily be invested in capital goods and that an aggregate demand failure has occurred;

(2) “many savings are not invested,” a rudimentary insight not far removed from Keynes’s theory of liquidity preference.

All that needed to be added was an analysis of the role of demand for money used in speculation on secondary financial asset markets for liquid assets as a store of value and subjective expectations in the investment decision.

BIBLIOGRAPHY
Baumol, W. J. 1977. “Say’s (at Least) Eight Laws, or What Say and James Mill May Really Have Meant,” Economica n.s. 44.174: 145–161.

Blaug, M. 1996. Economic Theory in Retrospect (5th edn). Cambridge University Press, Cambridge.

Kates, S. (ed.), 2003. Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle. Edward Elgar Pub, Cheltenham ; Northampton, Mass.

Say, J. B. 1821. Letters to Mr. Malthus: On Several Subjects of Political Economy, and on the Cause of the General Stagnation of Commerce. To Which is added A Catechism of Political Economy. Sherwood, Neely, and Jones, London.