…inflation occurs when, at a given price level, a country’s circulating media— cash and deposit currency—increase relatively to trade needs. (Emphasis in original.)Paul, by contrast, defines inflation as monetary expansion in absolute terms, and that's why it's a neologism -- it reflects neither the widely accepted modern definition (general increase in prices) nor the classical view.
—Edwin Walter Kemmerer (1918)
Thursday, September 10, 2009
Since much criticism (here, for example) of my End the Fed review has focused on my criticism of Ron Paul for defining inflation as any expansion of the money supply, I refer critics to this paper (PDF, and yes, it's from the hated Fed) "On the Origin and Evolution of the Word Inflation." In brief, the classical economists of the 19th and early 20th century regarded inflation as too much money circulating, not as any increase in the money supply. Example: