Inflation: Difference between revisions
Pestergaines (talk | contribs) Link. |
Pestergaines (talk | contribs) More details on inflation. |
||
| Line 3: | Line 3: | ||
Inflation is a general increase in the [[money]] supply.<ref name="Shostak_inflation">Frank Shostak. [http://mises.org/story/908 "Defining Inflation"], ''[[Mises Institute]]'', posted on 2002-06-03, referenced 2009-05-26.</ref> | Inflation is a general increase in the [[money]] supply.<ref name="Shostak_inflation">Frank Shostak. [http://mises.org/story/908 "Defining Inflation"], ''[[Mises Institute]]'', posted on 2002-06-03, referenced 2009-05-26.</ref> | ||
== | ==Definitions== | ||
There | There are several ways to define inflation, with varying usefulness and ability to explain it. | ||
[[Price]]s do not stay constant, they are always rising and declining. An increase in the money supply - inflation, properly defined - has a tendency to raise them in general.<ref name="Rothbard_inflation">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap12f.asp "11. Binary Intervention: Inflation and Business Cycles"], Chapter 12—The Economics of Violent Intervention in the Market, ''[[Man, Economy and State]]'', online version, referenced 2009-05-26.</ref | ===Mainstream=== | ||
In the popular definition, '''inflation''' is an ongoing rise in the general level of prices.<ref name="White_inflation">Lawrence H. White. [http://www.econlib.org/library/Enc/Inflation.html "Inflation"], ''[[Wikipedia:Concise Encyclopedia of Economics|The Concise Encyclopedia of Economics]]'', referenced 2009-05-26.</ref> | |||
However, this fails to explain why is inflation dangerous or exactly how does it cause its effects. "Why should a general rise in prices weaken real economic growth? Or how does inflation lead to the misallocation of resources? Moreover, if inflation is just a rise in prices, surely it is possible to offset its effects by adjusting everybody's incomes in the economy in accordance with this general price increase."<ref name="Shostak_inflation">Frank Shostak. [http://mises.org/story/908 "Defining Inflation"], ''[[Mises Institute]]'', posted on 2002-06-03, referenced 2009-05-26.</ref> | |||
It is sometimes claimed, that a specific price increase - e.g. of oil - can increase all prices on average. But if people must spend more on oil, will not prices drop for the goods that they can no longer afford to purchase?<ref name="Casey_rising_prices">Christopher P. Casey. [http://mises.org/story/3482 "Only Criminals Use Honest Money"], ''[[Mises Institute]]'', posted on 2009-06-03, referenced 2009-06-3.</ref> (It is also impossible to establish an average of prices of different goods and services.<ref name="Shostak_inflation" />) | |||
===Increase in money supply=== | |||
[[Price]]s do not stay constant, they are always rising and declining. An increase in the money supply - inflation, properly defined - has a tendency to raise them in general.<ref name="Rothbard_inflation">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap12f.asp "11. Binary Intervention: Inflation and Business Cycles"], Chapter 12—The Economics of Violent Intervention in the Market, ''[[Man, Economy and State]]'', online version, referenced 2009-05-26.</ref> | |||
==Effects of inflation== | ==Effects of inflation== | ||
Revision as of 20:37, 3 June 2009
Inflation is a general increase in the money supply.[1]
Definitions
There are several ways to define inflation, with varying usefulness and ability to explain it.
Mainstream
In the popular definition, inflation is an ongoing rise in the general level of prices.[2]
However, this fails to explain why is inflation dangerous or exactly how does it cause its effects. "Why should a general rise in prices weaken real economic growth? Or how does inflation lead to the misallocation of resources? Moreover, if inflation is just a rise in prices, surely it is possible to offset its effects by adjusting everybody's incomes in the economy in accordance with this general price increase."[1]
It is sometimes claimed, that a specific price increase - e.g. of oil - can increase all prices on average. But if people must spend more on oil, will not prices drop for the goods that they can no longer afford to purchase?[3] (It is also impossible to establish an average of prices of different goods and services.[1])
Increase in money supply
Prices do not stay constant, they are always rising and declining. An increase in the money supply - inflation, properly defined - has a tendency to raise them in general.[4]
Effects of inflation
Profit of money creators
Increases in the money supply initiate an exchange of something for nothing. They divert real funding away from those, that generate wealth towards the holders of the newly created money. The general increases in prices, which follow, are a symptom of the erosion of money's purchasing power.[1]
Rising prices
The increase in the money supply will create a new level of prices, but it will not be the old level of prices, multiplied in all relations and quantities.
New money will change the spending habits of people. Also, some of them will make gains and losses and will alter their spending habits accordingly. Therefore, all prices will not increase uniformly. Some prices will rise more than others, therefore, some people will be permanent gainers, and some permanent losers, from the inflation.[4]
See also
- Wikipedia page on Inflation
- Inflation from The Concise Encyclopedia of Economics
- What You Should Know About Inflation, Henry Hazlitt
References
- ↑ 1.0 1.1 1.2 1.3 Frank Shostak. "Defining Inflation", Mises Institute, posted on 2002-06-03, referenced 2009-05-26.
- ↑ Lawrence H. White. "Inflation", The Concise Encyclopedia of Economics, referenced 2009-05-26.
- ↑ Christopher P. Casey. "Only Criminals Use Honest Money", Mises Institute, posted on 2009-06-03, referenced 2009-06-3.
- ↑ 4.0 4.1 Murray N. Rothbard. "11. Binary Intervention: Inflation and Business Cycles", Chapter 12—The Economics of Violent Intervention in the Market, Man, Economy and State, online version, referenced 2009-05-26.