07 Aug 2013

Austrians Are Not Redefining Inflation

Inflation 127 Comments

There has been some buzz in the blogosphere lately about us wacky Austrians and our idiosyncratic definition of “inflation.” Nick Rowe calls it “a bit daft” (though goodnaturedly, as I imagine Nick would banter with someone robbing him at gunpoint), and Gene Callahan finds it not as useful as the current popular definition says it “won’t do” while Jonathan Catalan is more sympathetic.

In this post I want to make two points:

(1) Contrary to the assertion of Blackadder, the Austrians are not “redefining words” for ideological purposes. We claim that there was an ideological redefinition in the past, which we are trying to undo! Here’s Mises (quoted by Catalan) from Human Action:

The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation. What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless. It plays an important role in fomenting the popular tendencies toward inflationism.

(2) I agree with the standard Austrian position on this. But because I am aware of the confusion it would cause, I always take care in my own writing to say “monetary inflation” and “price inflation” (or deflation).

I could say a lot more about why I think the original definition is important to resurrect, but that would blur the focus of this post. It’s not just Blackadder; I routinely see people claiming that guys like Schiff are “moving the goalposts” etc. with this allegedly wacky definition of inflation, and I want to emphasize that in our minds, we are trying to undo a deliberate semantic revolution that has had pernicious consequences and has served to confuse the public about what’s going on.

127 Responses to “Austrians Are Not Redefining Inflation”

  1. Dan says:


  2. Joseph Fetz says:

    Interestingly enough, there’s a paper from the Cleveland Fed that goes over all of this.


    • joe says:

      That paper refers to an “imbalance between the quantity
      of money and trade needs.” The Austrian definition makes no reference to an imbalance. The refer to inflation as an increase in the money supply with no reference to change in output. So if the money supply increases 5% and output increases 10%, there is inflation although prices would probably fall in that scenario.

      • Joseph Fetz says:

        Dude, the paper says a few things, what I was focusing on is the history of the term, not specific instances in which the term was used in a certain way. The only point that I am making is that the term “inflation” historically meant an increase in the supply of money, and that even the Fed recognizes this fact.

        • Gene Callahan says:

          And the sun was historically speaking a planet.

          • TheDjinn says:

            The basis for the definitional change was the recognition that the Sun was the center of the solar system and that the sun was fundamentally comprised of the same thing stars were.

            Conversely, one day inflation magically became “increase in prices” rather than “increase in the supply of money”, for literally no valid reason whatsoever.

          • Joseph Fetz says:

            I get your point, Gene, but it still isn’t quite the equivalent example that you think that it is in this case.

            After all, we know that the sun is not a planet, whereas monetary inflation certainly is the prime driver of price inflation, and both of these terms are quite relevant to the nature of the thing that we’re talking about in terms of economics (money and prices), this has never really changed.

            That’s why I distinguish between “monetary” and “price” inflation, because I think that it is more important that people understand the relationship between money and other goods than anything else.

            Whenever I hear the term “inflation” I automatically think in terms of it dealing with money and prices, whereas when I hear the term “sun” I never think in terms of it being a planet. In the one case the term was deemed entirely unconnected to its description, whereas in the other the description is still intimately tied to the term.

            • Ken B says:

              “whereas when I hear the term “sun””

              You’ve got it backwards Joe. The question is, when you hear the word “planet” do you think of the sun as one” It’s planet which has changed meaning not sun, which still refers to that same yellow thing.

              • Joseph Fetz says:

                Ken, I actually did catch that, but I had already hit “submit”. On Bob’s blog you’re stuck with whatever you posted, mistakes and all. I’m pretty sure that this is by design.

                In any case, the term “inflation” is actually very much like the term “sun”. It still is connected to it’s original concept (just like “sun” still refers to that orange thing up in the sky), whereas the term planet to describe the sun, just isn’t.

                I could see Gene’s argument if he were saying that inflation now was called “utility” or “value”, or some other term that is disconnected from reality, but that’s obviously not what he’s saying, so his example simply doesn’t seem to be nearly an analogous concept to me.

            • Gene Callahan says:

              “After all, we know that the sun is not a planet…”

              No, then you aren’t getting the point: it depends on the definition. Per the definition of 1400 and earlier (wanders among the fixed stars from the point of view of the earth) the Sun was and still is a planet. The definition changed.

              • Major_Freedom says:

                Language is a tool, not an altar.

              • TheDjinn says:

                Simply stating that the definition of the Sun changed is not an argument against the Austrian position; rather, it is a non sequitur when used as a response to the actual position.

                I apologize in advance if you are not arguing against the Austrian position, but one does not usually state non sequiturs out of the blue without clarifying whether they’re rebutting or butressing the stated position, or even just simply commenting.

              • Ken B says:

                “Simply stating that the definition of the Sun changed ” is something Gene did not do.

              • Bob Murphy says:

                With all kinds of different referees (myself included) calling out various and contradictory infractions in this debate, I’m starting to agree with Ayn Rand that you need a nightwatchman State.

  3. guest says:

    Robert Wenzel tackled this issue when Joe Weisenthal accused Austrians of that.

    Joe Weisenthal Goes Total Idiot in an Attack on Austrians

    He tweets:

    People who call Austrian economics a cult often miss the most compelling evidence: That Austrians have invented their own language.
    — Joseph Weisenthal (@TheStalwart) February 20, 2013

    Which is followed by this:

    For example, Austrians define inflation totally differently than real economists. mises.org/easier/I.asp#16
    — Joseph Weisenthal (@TheStalwart) February 20, 2013

    Get Your Popcorn Ready: Joe Weisenthal Has Apologized to Mises…

    As a follow up to my post, Joe Weisenthal Goes Total Idiot in an Attack on Austrians, Weisenthal has tweeted up a storm.

    Joseph Weisenthal @TheStalwart
    So. Some Austrian economics bloggers are having a field day with me for what i said about the definition of inflation […]

    Then Joe tweets:

    Joseph Weisenthal @TheStalwart
    I don’t know the history, but I might have been wrong about the pre-current definition of inflation. In which case I apologize to Mises…

  4. Joseph Fetz says:

    Oh, and I too always use the terms “price inflation” and “monetary inflation”, but that is because, like you, I do understand the history of the term.

    • joe says:

      what is the current rate of monetary inflation?

      • Joseph Fetz says:

        What’s the current rate of price inflation?

        There is simply no way to answer either question, because all data is backward looking, and is mostly incomplete. It’s sort of like asking, “what is the current population of the Earth?”. Nobody can answer that, and even if they could compile the data, that would take time, which would presumably mean that the data has already changed.

      • Jaycephus says:

        What is the current rate of price inflation?

        The real rate, not the government-faked numbers, a number of which you have to choose from, in any case! So if you want to use a government number, explain why you chose that one and not, say, the GDP deflator.

      • Major_Freedom says:

        What is your definition of the money supply?

  5. Guillermo Sanchez says:

    Actually, 14 years ago Joe Salerno clashed with Timberlake on this issue: the meaning of “inflation”. Salerno documents very well the “old” meaning… This never ends!



  6. Ken Pruitt says:

    The Austrian definition of inflation is also the Chicago definition of inflation as well, as Milton Friedman himself used it in part 9 of his FREE TO CHOOSE series. In it, he soundly discredited the myth that unions can cause inflation and he also exposed the “Bracket Creep”. I’ll link the full video here for proof.


  7. Justin Merrill says:


    To be clear, when Mises says this, which money supply is he referring to, base money or inside money? If he is referring to base money, I think I agree.

    When I hear Peter Schiff and other people repeat this, they are saying “The Fed” is creating inflation so that tells me they are also looking at M0 and not M2.

    So to be consistent, historically we could say that the California gold rush of 1849 created inflation and the shrinking monetary base in the 1870s was deflation.


    • Joseph Fetz says:

      M0? Really? I mean I know that guys like Schiff use the term “printing” a lot, but I would think that most people know that they don’t mean that literally. In most cases, guys like Schiff are merely talking about all money supply (high-powered and bank credit), but in the real world, this has most visibly been shown in MB rather than other money aggregates. Obviously, there’s a lot to say about excess reserves on this issue, but maybe that’s a topic for a different time.

      I’ve never gotten the impression that any Austrian is against monetary inflation or price inflation per se, rather they’re free-market types, so they prefer the market to determine the money supply rather than a central banker. Obviously, there’re some arguments in Austrian circles dealing with FRB, but on the central bank issue it’s pretty clear: the money should be left to the market. And obviously, they also prefer that the market determine the price of money, as well as all other goods. This isn’t necessarily based upon a value-judgement in a methodological sense, rather it is based upon the pre-conditional assumption of a completely free-market (a necessity to economic theorizing) and a particular understanding of how money originates (i.e. the regression theorem).

      Certainly, all economist by virtue of they’re being human have ideals with regard to the subject of economics and political philosophy, but that is quite different from the methodology of economics.

      As for Schiff, I know that he’s been highly influenced by Austrian ideas and that many Austrians claim him as their own. This is all pretty apparent. However, I try to be a bit more realistic and say that while he surely has Austrian influences, he also has apparent supply-side and Chicago School influences, such that I don’t know that I would be comfortable saying that he is entirely “down with the prax”.

      • Justin Merrill says:


        I meant to type MB instead of M0, but according to the Fed paper you linked, M0 did have historical precedence for the definition of inflation. It cites the US free banking era and bank notes issued in excess of their reserves as being inflation. This is at the same time that Robert Peel’s Bank Charter Act of 1844 was passed. Mises was a proponent of the Currency School but argued that they weren’t radical enough because they only wanted to suppress new note issuance, when in Mises’s mind demand deposits in excess of specie was inflation. This definition seems to only work on a redeemable currency, but the question still remains: which definition of the money supply are we using here for our definition of inflation?

        There are Rothbardians that think that any issuance of fiduciary media causes the business cycle and don’t agree that any market outcome in regards to money is socially optimal; meaning their ethical framework and their economic framework can clash, so they try to justify it by calling FRB fraud.

        As for Peter Schiff, he is clearly an Austrian, not a fellow traveler. The problem is that he knows just enough to get himself into trouble and this can reflect on others with his brashness. He is the one out there in the public eye that was predicting hyperinflation by now and retreating behind this definition went he meant price inflation. Now he is falling back on the errors of the CPI and how he’s vindicated.

  8. joe says:

    why do some people have such a hard time admitting that they’re wrong?

  9. Adrian Gabriel says:

    It is quite clear that Austrians take a more realistic approach to both valuation and in this case defining inflation. Inflation is a rise in the money stock, because the rise in the money stock affects prices. Many times I see the concern of the mainstream economists as a petty desire to draw their little curves and lines and add funny numbers to them, without the clear understanding of how humans act and value things. Mises best describes the inefficiencies and misunderstanding of much of the mainstream ballyhoo and cult worship of numbers here:

    “In fact, even with an unchanged supply, the marginal utility of several units taken together is not equal to the marginal utility of one unit multiplied by the number of units, but necessarily greater than this product. The value of two units is greater than, but not twice as great as, the value of one unit. [5]

    Perhaps Fisher thinks that this consideration may be disposed of by supposing β and β/2 to be such small quantities that their utility may be reckoned infinitesimal. If this is really his opinion, then it must first of all be objected that the peculiarly mathematical conception of infinitesimal quantities is inapplicable to economic problems. The utility afforded by a given amount of commodities, is either great enough for valuation, or so small that it remains imperceptible to the valuer and cannot therefore affect his judgment. But even if the applicability of the conception of infinitesimal quantities were granted, the argument would still be invalid, for it is obviously impossible to find the proportion between two finite marginal utilities by equating them with two infinitesimal marginal utilities.”

    I do remember many times the inability of mainstream economists to understand how to calculate the money stock, or understand what is considered money. If mainstreamers keep going by the book and not believing the subjective values of the individual, they will miss the clear effect on exchange ratios and thus on prices. Realistically, asset prices get inflated, and thus consumer goods. Let us not forget that even if those who supposedly earn wages calculated by the BLS as rising with the price of goods as not feeling the effects of the rise in prices, then why is it that there are more homeless people in NYC now than during 2008?

    If mainstream economists continue to believe that their cobbled data is matter of fact in regards to the real world, then indeed they will believe that inflation is a rise in prices, missing the importance of not only the rise in the money stock, but also what money is and how it is subjectively valued and defined.

  10. Bala says:


    I bet you can’t guess how happy I am to see this post. Thanks a ton for making my day.

  11. Cosmo Kramer says:

    “I always take care in my own writing to say “monetary inflation” and “price inflation” (or deflation).”


    Although I wish economists would make observations with regards to “all else being =”, Net (price) inflation of 1% in an environment that (absent of inflationary policy) would be -5% is actually an inflationary effect of 6%. Analogous to getting a salary cut YoY of 1% instead of a 5% YoY raise.

    I just listened to podcast of Stephanie Kelton and she violated common sense in that respect, saying that it’s time to stop the MMT juice when (price) inflation heats up. She was only referencing net price inflation. Which circles back to the question I posed to Warren Mosler twice (and he ignored twice). How do you measure the inflationary effect of your policy alone…..? We could get high CPI inflation other ways than just printing money. What if we are already at 10% YoY CPI inflation before W. Mosler is elected president of Keltonia? It doesn’t matter what point you start from. An Inflationary effect of 5% is the same at 0% as at +/-10% existing CPI change YoY. A -10% environment doesn’t give you freedom to inflate to +5%.

    Apoplithorismophobia? Obviously, but that doesn’t excuse the lack of common sense. Your policy either has an inflationary effect or deflationary effect on prices. MMT’ers sure are silly.

  12. Ken P says:

    Ok, I’m usually sloppy with the term because I know that the effect is what people worry about, and thus the pop usage of inflation, but I thought that every real economist understood real inflation refers to monetary expansion and that price inflation is a crude measure of the current impact of real inflation.

    Monetary inflation is simply a stock split that no one gets compensated for. Monetary expansion hides the price deflation that innovation in the market place brings us. Reserve currency status hides the price inflation effects of monetary expansion.

  13. Tel says:

    I see a deeper problem here that doesn’t necessarily relate to currency only. Consider the market capitalization of a corporation (generally defined as the price of a share multiplied by the total shares). It isn’t necessarily a valuation of the company, because the price might change significantly on only 0.01% of the shares trading but the company itself is still the same.

    If someone ever tried to realize the full market cap by selling, they wouldn’t get anywhere near.

    • Bernie King says:

      Actually, when you look at many LBO’s and hostile takeovers, not only do the purchasers often offer to pay the full market cap, they will sometimes even pay a premium.

      • Ken P says:

        I would say you are both right. If you want to SELL all the shares, you will get less than current mkt price. If you want to BUY all the shares you will pay more than current mkt price.

        • Tel says:

          Exactly why market cap is not a real valuation.

          If you think about this analagous to money, some money changes hands a lot, while other money sits on the sidelines in various ways. Although it is all money, price inflation is controlled mostly by the money changing hands, not the money sitting on the sidelines.

          In the case of a company, if a retirement fund owns 30% of the shares and a hedge fund owns 5% then the hedge fund controls the valuation of the retirement fund asset, simply because the hedge fund will actively trade but the retirement fund just sits. I mean, that’s a bit of a charicature but you get what I’m saying.

  14. John P says:

    Here’s Henry Hazlitt on the matter:

    Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit. In fact, inflation is the increase in the supply of money and credit. If you turn to the American College Dictionary, for example, you will find the first definition of inflation given as follows:

    Undue expansion or increase of the currency of a country, especially by the issuing of paper money not redeemable in specie.

    In recent years, however, the term has come to be used in a radically different sense. This is recognized in the second definition given by the American College Dictionary:

    A substantial rise of prices caused by an undue expansion in paper money or bank credit.

    Now obviously a rise of prices caused by an expansion of the money supply is not the same thing as the expansion of the money supply itself. A cause or condition is clearly not identical with one of its consequences. The use of the word “inflation” with these two quite different meanings leads to endless confusion.

    The word “inflation” originally applied solely to the quantity of money. It meant that the volume of money was inflated, blown up, overextended. It is not mere pedantry to insist that the word should be used only in its original meaning. To use it to mean “a rise in prices” is to deflect attention away from the real cause of inflation and the real cure for it.

    What You Should Know About Inflation (1964)

    • Gene Callahan says:

      “Undue expansion or increase of the currency of a country, especially by the issuing of paper money not redeemable in specie.”

      Incredible! The definition Hazlitt quotes as backing him in fact is very different than his! (Note the word “undue.”)

      • John P says:

        Isn’t it the case that an increase in the money supply (whether warranted or not) would lead, all other things being equal, to prices being higher than they would be otherwise?

        • Ken B says:

          Actually not, if there is a pre-existing 100% desire to hold more money. So newly issued money will all be held. But that’s a weird case. In most cases, yes of course. But the real isue is the all other things being equal. Since the advocates of money inflation advocate explicitly on the basis that there ARE other attendant causal effects to that we should only look at the other all other things being equal case — the partial derivative rather than the whole derivative — isn’t very helpful.

          • John P says:

            Are you talking about insufficient aggregate demand?

            • Ken B says:

              No, I’m talking about the difference between a partial effect and a total effect. You have a bleeding wound and are at risk of dying of blood loss. I suggest stitches. “But wait, won’t stitches mean holes, and don’t holes, all other things being equal, bleed?” Quite true; shall we dispense with the stitches then?

          • Major_Freedom says:

            And how will that money be circulated such that people succeed in holding more money? By helicopter? No, by exchanging money for goods and services.

            More money in a context of exchange will raise prices from what they otherwise would have been.

            You’re imagining a magical addition of zeroes to everyone’s bank accounts.

        • Gene Callahan says:

          John P, you are red herringing me: maybe that is true (Ken B’s points here are sound, I think), but that is irrelevant: the very definition that Hazlitt points to for support does NOT in fact support his case.

  15. John P says:

    Bob, this reminds me of your recent debate with professor Friedman where you were talking about the 1920’s and how most economists were only looking at the price level and and not the growth in the money supply and Friedman accused you of attacking a strawman (and you got slightly snarky with him).I don’t see how it was a strawman.This is the way most economists today seem to talk about inflation. It only serves to put the idea in the minds of the public that inflation is something that central bankers and politicians have no control over and is like, to quote Hazlitt, ‘a flood, a foreign invasion, or a plague’ that thay are here to fight and protect us from as though it were caused by unions, imports, greedy businessmen etc.

  16. Grant McDermott says:


    My major beef with Austrians and inflation is that they have played fast and loose with various definitions. I have several Austrian acquaintances who were positively screaming warnings of imminent “hyperinflation!”, USD collapse, etc around early 2009. However, when this prediction spectacularly failed to materialise, there was a galling lack of acknowledgement that they were wrong. “No, we were talking about monetary inflation all along, not price inflation! (Although price hyperinflation is still coming, you’ll see! (Maybe!)”


    At the same time, many of these same people are also trying to maintain that a) Government inflation figures are bogus, or something along the lines of b) “Look at the stock market. There is so inflation!”

    Basically, Austrians are simultaneously holding a number of contradictory views and then invoking whatever definition of inflation best accords with the outcome. (Hello pseudoscience.) The discussion is extremely disingenuous.

    • skylien says:

      I always like it when people do accusations in such general broad sweeping ways. That is the best way to start a fruitful discussion which is signified by mutual respect.

      • Grant McDermott says:

        I’m now sure how much respect it engenders when particular people behave in the manner that I have described. It certainly doesn’t make for an honest debate. As I have written, I’ve found the whole incident pretty galling.

        That said, I certainly don’t claim that all Austrians were guilty of this (though, in my experience, many are). I thought that I’d done enough to make that clear by (e.g.) referring specifically to certain personal acquaintances. But perhaps my last paragraph appears as too much of a sweeping broadside. Would you be happier if I had said: “Basically, some Austrians…”?

        • Bharat says:

          Yup, that would have been better.

          After all, you went to calling Austrian economics a “psuedoscience” due to the supposed fact some Austrians are loose with definitions.

          • Gene Callahan says:

            “After all, you went to calling Austrian economics a “psuedoscience”…”

            No, Bharat, he did not do that. He called redefining words to retrofit them to one’s predictions pseudoscientific.

            • Bharat says:

              Sorry, I’m not getting what you’re saying, Dr. Callahan.

              My issue with Grant’s comment is what he himself said, that’s it’s overly general.

              Grant said:
              Basically, Austrians are simultaneously holding a number of contradictory views and then invoking whatever definition of inflation best accords with the outcome. (Hello pseudoscience.)

              He did not say “Hello pseudoscientific actions.” He said “hello pseudoscience.” If he meant to say the former, it’s clear the latter was still overly general.

              • Ken B says:

                He is saying ‘hello pseudoscience’ at the point the pseudoscience enters the arena, right? That’s when one says hello. So what can he be referring to? That seems clear: “then invoking whatever definition of inflation best accords with the outcome.” Which is what Gene said.

              • skylien says:

                Well if he does that while he is referring generally to all Austrians then it is pretty much the same as calling AE itself a pseudoscience..

                It is not wrong to interpret it that way..

              • Grant McDermott says:


                Gene and Ken are on the money. My reference to pseudoscience relates to redefining terms to match any outcome. That’s very much in accordance with the Popper’s initial definition. I had thought this was clear, but I apologise if it wasn’t.

              • Bharat says:

                No problem, I understand what you meant to say; I was just pointing out what you did was easily (and probably, properly, from words alone) interpreted as overly broad and thus calling Austrian economics unscientific.

        • skylien says:


          Maybe you should have just added that you are fed up with discussing some daft “Austrians” you don’t want to name (whoever that might be, internet Austrians, known Austrian economists or whatever) on this matter and that you need to do little rant to let off some steam and frustration.

          BTW: I totally agree that it doesn’t make sense to use a word in the old sense if the meaning has changed without making that clear, because nobody would understand your point. Yes that means if you want to use it in the old meaning than you have to repeat yourself quite often, especially if you want other people to understand why you prefer the old meaning.

          On the other hand I am a bit shocked as well that so many people versed in economics don’t know the history of the word, which makes it impossible for you to understand e.g. Mises when he condemns inflationism which in the new meaning would merely mean “consumption-goods-price-increasesism” which is really not what he meant by it.
          It also is disturbing that there seems to be the automatism to rather condemn Austrians immediately for being cranky for having a different definition of the word than maybe first checking why that is and where this comes from. So you definitely can put blame on both sides, of which of course never all are guilty…

    • Joseph Fetz says:

      Which Austrians?

      I am asking this seriously, because today the lines have been blurred. I mean, one could describe me as an “Austrian”, but really I am just some guy –not even an economist, nor did I ever complete college– who is knowledgeable of economics and that subscribes to the Austrian view more so than others. So while many people could attempt to use me as an example of an “Austrian”, to do so certainly would be dishonest in this context

      Now if you’re talking about professional economists who describe themselves as Austrians, then sure, there were a few that over-stated what would happen, at least in terms of the current state of affairs compared to their predictions. But as Mises said, “the future is always uncertain”.

      One of these professional economists (who made a bad prediction) that describe themselves as an Austrian was Bob himself, but he was probably the first to admit that he might’ve been a little too careless with his prediction. In fact, he was pointing out his flaw before anybody even really noticed the discrepancy.

      • Grant McDermott says:

        I completely agree on Bob. He has been very open about his inflation forecasts, as well as tracing back the logic that led him to make those predictions in the first place.

        To be clear: My problem is not at all about making a wrong call or bad prediction. (Everyone is going to get something wrong.) What I do object to is redefining inflation — or hyperinflation for that matter — to suit your purposes no matter the outcome.

        • Joseph Fetz says:

          As I already asked, who has done this? Specifically?

          • Grant McDermott says:

            Okay Joe, I’ll bite.

            Here’s a recent Twitter conversation that I had, which pretty much dovetails perfectly with what I have described above. (It’s even more damning given some personal correspondence and context that we’ll have to omit for this thread.) Looking at my timeline from the last few weeks, here’s another convo with the same person — who, in spite of our ornery Twitter interactions, actually happens to be a good friend from school days. It’s on a slightly different topic, but follows much the same path. I don’t mean to pick on my friend, as I’ve seen this in many other places: Definitions and explanations are altered retroactively to better match the facts.[*]

            Another example? Okay, consider the widely watched CNBC segment with Peter Schiff and Scott Sumner. Schiff basically runs the full gamut of inflation definitions and explanatory epicycles that I have described: 1) QE *is* inflation, 2) the government CPI numbers are bogus and consumers are already experiencing much higher prices, 3) the inflation is really in the stock market, 4) it’s been exported to China, etc, etc. In fact, since we’re on the subject of simultaneously holding contradictory talking points, here’s another one: In trying to counter Sumner’s point about real GDP growth (4:40), Schiff claims that his inflation numbers (whatever they are) are right because the US is currently in a recession and has been “for the entirety of the Obama presidency”… Only to turn around and contend (7:00) that there actually is economic growth, but this is a “phony expansion” and that the recession (and rampant inflation) will only occur after QE stops.

            [*] It’s probably redundant, but I should say that my Twitter feed has seen many great examples over the last year or two. I really can’t be bothered to trawl through other people’s timelines now, though!

            • Ken B says:

              “Definitions and explanations are altered retroactively to better match the facts.”

              Yeah, I read Tom Woods too.

    • Cosmo Kramer says:

      ” I have several Austrian acquaintances who were positively screaming warnings of imminent “hyperinflation!”, USD collapse, etc around early 2009.”

      I don’t know a single Austrian that predicts hyperinflation. There are many that are wrongly lumped into the Austrian camp IMO. Every inflationista is always called an Austrian. Those making the accusations forget that there are debt doomsday deflationistas too. Austrian economics isn’t the school of inflation.

      Anyone well versed in Austrian Economics and with an ample amount of common sense will note the unlikely nature of hyperinflation in the U.S. Policy makers practically have to choose to go the hyperinflation route voluntarily.

      We must all admit something. It ultimately comes down to policy makers’ actions. Thus when we make predictions, we ought to say Y result if X condition. And many “if else” statements need to be referenced.

      Ron Paul is probably the most vocal Austrian speaking of Hyperinflation, but I never heard him say it was inevitable.

      “No, we were talking about monetary inflation all along, not price inflation! (Although price hyperinflation is still coming, you’ll see! (Maybe!)””
      Hyperinflation means only one thing. It is impossible to reference hyperinflation and then claim you were only talking about monetary base expansion.

      This is the camp I am in.


      “The government is in a position to repay only short-term bonds bought by the public. It is not allowed to repay holders of long-term bonds before the date that the bond terminates and the monies are to be repaid.

      This places the US government at a significant disadvantage with respect to creditors. While it is possible for issuers of corporate bonds to repay the creditors at any time, this is not possible for the US government. Furthermore, the largest of its debts are related to two programs: Social Security and especially Medicare. These debts cannot be repaid with fiat money, because to do so would involve paying off long-term debts early. This is not possible for the federal government, unless the federal government changes the law. If it does this, it would be an admission of total defeat. It will be open default.
      “~Gary North

      • Gene Callahan says:

        “I don’t know a single Austrian that predicts hyperinflation.”

        Predicted: Peter Schiff.

        Also, Bob predicted very high inflation, if not hyperinflation.

        But maybe Bob and Peter are incorrectly being lumped with Austrians?

        • Ken B says:

          No true Austrian. Not even the ones in kilts.

        • Cosmo Kramer says:


          It was a stated possibility. And has literally called it a “worst case scenario”

          “Also, Bob predicted very high inflation, if not hyperinflation. But maybe Bob and Peter are incorrectly being lumped with Austrians?
          “~Gene Callahan

          !?!?!? Holy moly, you take the cake for absurd statements. Bob’s failed prediction didn’t go anywhere near hyperinflation.

          Square your straw man with what I actually said:
          “I don’t know a single Austrian that PREDICTS HYPERINFLATION.” (emphasis added)

          • Ken B says:

            Predicts present tense?

            He’s got you LK. You naively keep looking at the predictions Austrians actually made, and Cosmo is talking about predictions they haven’t even made yet.

            Your evidence is helpless against this fiendishly clever ploy!

  17. Nick Rowe says:

    Hi Bob! Actually, I was a little more favourable towards the Austrian definition than that. I said I *used* to think it was a bit daft, but that now I’m beginning to think those Austrians sort of have a point.

    (That was high praise, so you Austrians should bask in it!)

    A couple of my commenters told me the Austrian definition was the old dictionary definition, which I didn’t know.

    • Ken B says:

      “A couple of my commenters told me the Austrian definition was the old dictionary definition, which I didn’t know.”

      I didn’t know it either but it makes a certain sense etymologically, as you inflate something by puffing it up, which fits with a supply of issued money. Here anyway is a link I found with some older dictionary definitions


      I’d say it looks like both meanings (and the ambiguity) have pedigree. Certainly this bolsters the Austrians’ historical claim. The problem is that this is one of those words whose meaning has shifted over time — like condescending — and the Austrian use of it now seems dodgy and tendentious.

      • Gene Callahan says:

        “The problem is that this is one of those words whose meaning has shifted over time — like condescending — and the Austrian use of it now seems dodgy and tendentious.”

        Right. It is not important that “stinky” used to have no negative connotation. It does now. And anyone going around using it as it it doesn’t is trying to redefine it.

        • Dan (DD5) says:

          Granted for the sake of argument that the “proper” definition of inflation is a rise in “price level”, what do you call it when the supply of money is increased just to prevent your “price level” from falling? What term should be used? According to you we have no “inflation” when prices would drop by 20% but don’t because the rise in money supply prevents it. So what do we have?

          • skylien says:

            A genius at the central bank.



            Do you (still) think the scenario described by Dan can have negative effects because the price structure is affected artificially or do you think now, it entirely doesn’t matter what happens with the money supply as long as prices are stable (which means price inflation <2%).

            A follow up question is: Do you see a potential problem with having nearly 2 trillion in excess reserves? I mean that they at least possibly are not manageable by the CB at all at some point?

        • Collin says:

          Words need to make sense to be useful. If the present definition is illogical than it should be redefined anyway(in this case reminded of it’s previous intelligible definition). Who cares what the dictionary says anyway? Words are constantly being redefined, that’s what language is.

        • Major_Freedom says:

          You mean words should not be redefined?

    • Razer says:

      Praise from an ignorant man is high praise?

  18. Thomas Enumyar says:

    What I also found especially interesting is the version history of the Wikipedia article on inflation.
    I once examined it and found out that it started out to be a rather Austrian (or original) definition and then rather moved towards the re-definition successively.

  19. Ken B says:

    Once a gay young blade was a likely seducer of pretty girls, a barnacle was a goose, awful meant full of awe not Bob’s latest defence of ID, and dapper meant fat. Those words mean those things now?

    • Matt Tanous says:

      Reminds me of a song from the 40s in which the young man is singing about losing his girlfriend, and the line goes “who will make me gay now”…. TOTALLY different meaning now.

      • Ken B says:

        Yup. Although even back then there’s some evidence the word was shifting meaning. In Bringing Up Baby, 1938, Cary Grant answers the door in a woman’s robe and when challenged says he “went gay all of a sudden.”

    • Razer says:

      But were they changed deliberately in an effort to hide blame the way inflation was changed. That’s the point the isolationists on this board all seem to miss. Funny how it’s the inflationists that see no issue with the changing of the definition.

    • Major_Freedom says:

      Ken B’s jokes are dryer than a nun on Sunday.

  20. John says:

    I think Rothbard gave the most specific definition in “Man, Economy, and State” when he defined inflation as an increase in money not backed by an increase in specie. Even after the gold standard I still find that definition very useful if you think it through enough.

    • Ken B says:

      “Rothbard gave the most specific definition …”

      John, giving a more specific definition, so you can use the connotation whilst denying the denotation, is exactly what the Austrians are being accused of.

      • Ken B says:

        It occurs to me that, if we use the original meanings, Jesus can be aptly described as awful and condescending, yet I think Bob would object to that.

      • Matt Tanous says:

        On the contrary, when there is ambiguity, giving a clear and specific definition of the sense in which you are using a term is not only proper, but necessary to adequately convey your point.

        Otherwise, you will never explain it to anyone else in a way they can understand.

  21. Bob Roddis says:

    I’ve long been suggesting calling the increase in the supply of money “dilution”. Like pouring a bunch of water in your beer. It gets straight to the point and even a TV news anchor could understand it.

    • Cosmo Kramer says:

      Less confusion, as many can understand dilution in how it relates to shares of a company’s stock.

      • Bob Roddis says:

        And, in terms of stock, it may give rise to a civil cause of action for damages.

  22. Barry Cooper says:

    I deal with this on my website. The Donkey and Elephant in the room is that BANKS create most money in the process of creating and extinguishing money (after they get their pound of flesh). This process is between difficult and impossible to measure. The money printing of the Fed merely facilitates this process.

    Practically, price signalling tells us how much money is getting circulated, but the salient fact is that money creation is, ipso facto, wealth transfer. It is creating certificates to buy something literally for nothing. This is what matters.

    We read banks have some $32 trillion stashed in off-shore accounts. Don’t you think that money would be helpful in general circulation if it hadn’t been stolen in the first place? Would it not be helpful if substantially evern Briton, American, German, Frenchman, Spaniard, etc. owned their homes outright, and had no debt on their cars or credit cards? Would it not be helpful if prices were one twentieth what they are?

    I deal both with the problem and the solution at some length on my website. I believe I have linked the correct page.

    If you have feedback, you can email me at bearachtraining@yahoo.com

  23. Ken B says:

    SCHIFF in 2009 on 2010: “It means their life is going to get a lot more difficult. It means things that they need to buy, things like food and energy, are going to be much more expensive. Ultimately, interest rates are going to rise and their entire standard of living is going to plunge.

    And I’m hoping the government doesn’t respond to this inflation with price controls because that’s going to make it even worse. Now, you’re going to be waiting in long lines to get basic food items or to get energy because there’s going to be shortages. People might be going to the black market.”

    That sure sounds like price inflation. So when it doesn’t happen, retreating behind “Oh inflation only means money supply and that happened” seems dodgy.

    • John P says:

      Agreed, but lets be clear. ‘Austrian’ economists have long used the word ‘inflation’ to mean an increase in the money supply. It’s not a recent invention to try and cover embarrassing inflation predicitons even if some people may choose to use it that way.

      • John P says:

        I should say price inflation predicitons!

    • Matt Tanous says:

      Schiff isn’t an economist, so I wouldn’t really expect him to use strict academic definitions for terms. Did you know some non-economists refer to inflation as any increase in prices, for any reason? And they refer to the “deflation” in the computer industry?

  24. Ivan Jankovic says:

    Inflationists don’t like to be call inflationists, and they cite the insane definition of inflation that they themselves concocted in order to justify inflation as a “proof”‘ that they are not inflationists.

  25. Ivan Jankovic says:

    Inflationists don’t like to be called inflationists, and they cite the insane definition of inflation that they themselves concocted in order to justify inflation as a “proof”‘ that they are not inflationists.

  26. Ivan Jankovic says:

    And Bob you are too generous again: ‘price inflation’ is not only the CPI. What about commodities? Or raw materials or intermediate goods? All the important items whose prices are arbitrarily excluded from the popular definition of inflation in order to make the current monetary regime appear less inflationist than it really is. Why the prices of consumer goods would be more relevant than the prices of commodities, durable or capital goods? Moreover, from an Austrian point of view the latter are infinitely MORE important. And their prices are skyrocketing.

  27. Yancey Ward says:

    I just wish those who focus on prices would focus on prices of all things. I don’t have a bond portfolio because I plan on eating bond souffle or wearing them as socks when I am 65+.

  28. Lord Keynes says:

    “We claim that there was an ideological redefinition in the past, which we are trying to undo! “

    There was no “ideological redefinition in the past”. The word has always been used in both the sense of “price inflation” and “monetary inflation”:


    If not, why is the expression “inflation of prices” so common in the 19th century?

    • Bob Murphy says:

      Lord Keynes wrote:

      why is the expression “inflation of prices” so common in the 19th century?

      That would be a sensible expression, if the shorter term “inflation” meant an increase in the quantity of money, right?

      I’m not betting my life on what the average person in 1840 meant by the term “inflation” with no other adjectives attached. But I’m saying your alleged smoking gun here, actually is evidence in my favor.

      • Lord Keynes says:

        No, Bob Murphy, if your argument were credible, then the fact that the expression “inflation of the currency” is also very common in the 19th century — sometimes even more common than ” “inflation of prices” — must demonstrate that the shorter term “inflation” normally meant an “increase in prices.”

        We happen to now live in age when we check this with empirical evidence, bob:


        • Major_Freedom says:

          the fact that the expression “inflation of the currency” is also very common in the 19th century — sometimes even more common than ” “inflation of prices” — must demonstrate that the shorter term “inflation” normally meant an “increase in prices.”

          That doesn’t follow.

          If “inflation of the currency” is used more frequently, or as frequently, than “inflation of prices”, then this says nothing about what was typically meant by “inflation” on its own.

          Thankfully, we have empirical evidence on this, and if you read the classicals, you will find that “inflation” generally meant an increase in the money supply, NOT rising prices. As Mises noted, that definition became popularized later on.

      • Ken B says:

        Not so fast my fine feathered friend. This suggestions that the usage “inflation of” was common. That makes sense when you think of the image. So inflation of prices, inflation of the money supply. But that doesn’t mean that inflation alone and shorn of its complement meant either form.

        • Lord Keynes says:

          Is this comment directed at me or Bob Murphy, Ken B?

          • Ken B says:

            When I typed it I meant Bob.

            This is actually quite lovely now that you point it out LK. The wording *could* apply to you — except for the feathers — but if it did, then it would be an argument bolstering your point, and hence would NOT apply to you!

            My point is this. The locutions “inflation of X” where X varies clearly were common. Eventually the wider public adopted just one of the meanings as the shorter “inflation” with no preposition or complement. Which is more likely, that the man in the street wanted a shorter way to talk about M1, or a shorter way to talk about the cost of food?

            • skylien says:

              Why “except for the feathers”?

              LKs reaction might be indicative that he has the same burden to ‘bear’…


              • Ken B says:

                LK is a featherless creature. All Keynesisans are featherless.

    • guest says:

      … the excessive and long continued inflation of prices, and the confidence that this inflation …

      At least for this quote, one doesn’t need to say “inflation of prices” a second time. The context had already been defined.

      Your 19th century quotes are consistent with what Salerno said In an article that Guillermo Sanchez linked to:

      Money and Gold in the 1920s and 1930s: An Austrian View

      Let me begin with Timberlake’s contention that Rothbard imputes a meaning to the word “inflation” that is both new and unacceptable. In fact Rothbard’s definition of inflation as “the increase in money supply not consisting in, i.e., not covered by, an increase in gold,” is an old and venerable one. It was the definition that was forged in the theoretical debate between the hard-money British Currency School and the inflationist British Banking School in the mid-nineteenth century.

      Unfortunately, however, because the writers of the British Currency School, unlike their American cousins, neglected to consider bank deposits as part of the money supply, their policies as adopted in Great Britain failed to prevent inflation and the business cycle. Consequently, and tragically, the School’s doctrines and policies fell into profound disrepute by the late nineteenth century, and its definition of inflation was replaced by that of the opposing Banking School, which saw inflation as a state in which the money supply exceeds the needs of trade.

  29. joe says:

    Funny thing is that even if you define growth in the money supply as inflation, the Austrians still called it wrong when predicting runaway inflation when the Fed Funds rate was reduced to .25% in 2008.

    M2 Money Stock (M2), Billions of Dollars, Monthly, Seasonally Adjusted
    July 1988: 2953.7
    July 2008: 7750.3
    July 2013: 10678.1

    From July 1988, to July 2008, the money stock grew 4.94%/year. From July 2008 to July 2013, the money supply grew 6.6%/year. Faster growth in the money supply but nothing resembling “runaway” inflation or a “dollar collapse” as predicted by Peter Schiff in 2008.

    • Bob Roddis says:

      I never predicted “runaway inflation”. I’m not responsible for others that did.

  30. Bob Murphy says:

    You guys are missing an even easier target: There are some cranks walking around who complain that the meaning of the word “liberal” was deliberately changed over the years. I mean, they even have a book calling Mises the knight of liberalism.

    What scam artists! Mises didn’t watch Rachel Maddow or vote for Ted Kennedy. He’s obviously not a liberal, not unless you’re going to call the sun a planet. Man these Austrians are so stupid.

    • Ken B says:

      My friend who lives in Paris says I’m an ultra-liberal. Still if I call myself that in the cafeteria people will be misled.

      I have some sympathy here Bob, I’d like to reclaim “liberal”. What you are trying to do is stand athwart lingusitic history and shout “stop.” Too late.

    • Ken B says:

      BTW Bob, note I didn’t complain about your hyperbole or imputed speech …

  31. Tom Dougherty says:

    I don’t know this guy Peter Schiff, but I bet he wouldn’t worry about a 1.3% percentage point increase in the rate of growth of M2 since 2008 to cause “runaway” inflation. More likely he was worried about the dramatic increase in the monetary base. But what also happened to offset the monetary base is that there has been a dramatic increase in excess reserves. Banks have been sitting on those reserves and it has not made it to the public to be spent to cause prices to rise. Those who have predicted “runaway” inflation have been wrong because of the huge increase in excess reserve. But the money supply has been inflated in terms of the monetary base, but not so much in terms of M2 as you demonstrate above. And money base inflation did not cause prices to rise because it never made it to the public to be spent.

    • Bob Roddis says:

      Very true. And all of that had absolutely nothing to do with the application of Austrian analysis or concepts per se. It had to do with predicting specific events and actions.

    • Cosmo Kramer says:

      A bit poorly worded, but point is still made.

      The Fed purchasing treasury securities adds reserves to das banks.

      The M2 to base money ratio was about 10:1 pre-recession. Were this ratio to exist today……….

      2013-07-24: 3.326.332 Trillion Dollars (BASE)

      A lot of inflationistas note this, although rarely explicitly. The potential of inflation is downright horrific, but I still take the Gary North stance. It isn’t just the supply of money. A lot of inflationistas predicted high money velocity due to loss of faith in the US dollar for several reasons. That is probably the worst performing prediction, as velocity has plummeted.


  32. Anonymous says:

    “we are trying to undo a deliberate semantic revolution that has had pernicious consequences and has served to confuse the public about what’s going on.” AMEN https://wealthcycles.com/features/liberal-inflation-money-meanings-skewed-to-hide-fiscal-truth

  33. Andrew Keen says:

    Unsurprising: A creationist resisting the natural evolution of language.

    Just kidding Bob, I agree with you on this one. I feel like price inflation is the wind chill to monetary inflation’s temperature. For that reason, I think monetary inflation should be considered the standard measure of inflation. Price inflation is the extent to which certain sectors of the economy feel the effects of monetary inflation. Furthermore, most people who say “inflation” don’t even mean general price inflation for the entire economy. They use the most general term (inflation) as shorthand for CPI, which is a very specific kind of inflation. Saying “inflation” and meaning “the extent to which a typical consumer feels the effects of monetary inflation” (CPI) seems very awkward to me.

    • Bob Murphy says:

      They use the most general term (inflation) as shorthand for CPI, which is a very specific kind of inflation. Saying “inflation” and meaning “the extent to which a typical consumer feels the effects of monetary inflation” (CPI) seems very awkward to me.

      And it’s evolving even more, before our very eyes. I haven’t been paying as much attention now, but as of 2 years ago, there was a big push to switch it to “consumer prices ex food and energy,” i.e. “core CPI.” I think the reason we haven’t seen that stressed as much, is that there’s no advantage in stressing core versus headline CPI recently. (And I’m being dead serious.)

  34. Mike T says:

    Bob –
    “I could say a lot more about why I think the original definition is important to resurrect, but that would blur the focus of this post”

    >> I’m not sure where you’re planning on going with this, but this brought to mind a recent Sumner post on inflation: http://www.themoneyillusion.com/?p=22820

    “Almost no one in the public understands inflation targeting. ”How can a higher cost of living be a good thing?” If they said they’d like to see the aggregate incomes of the British people rise at a steady 4.5% a year, people would at least understand the objective.”

    >> Well, wait a minute. What is wrong with the hypothetical public reaction he puts in quotes?! Inflation targeting is the policy action of central bankers purposefully inducing price inflation through some transmission mechanism. The public reaction is right. If their nominal wages are not rising as fast or faster than the goods/services that they are purchasing, then their cost of living is rising. This condescending mockery reeks of confirmation bias. The objective is higher prices. And everyone’s wages don’t rise faster and/or higher than the price of consumer goods/services. A commenter Geoff noted this same thing on there which was the same as my first reaction when reading that post earlier today and seemed to somewhat tie in with your post here.

  35. Major_Freedom says:

    Murphy is right. Inflation originally referred to an increase in the money supply.

  36. Edward says:

    The only “monetary” inflation that matters is MV/PY. I don’t give a damn if the monetary base increase by a 1000%. If 997% of it is saved, tied up in hoarded reserves, than “monetary inflation” doesn’t make a difference

    • Bob Murphy says:

      Edward wrote:

      I don’t give a damn if the monetary base increase by a 1000%. If 997% of it is saved, tied up in hoarded reserves, than “monetary inflation” doesn’t make a difference

      So if the Fed just erased all those entries for the banks’ deposits, nothing would happen, right? I mean, that money never “entered the real economy.”

      (I’m also criticizing Austrians with this jab, who argue that because it went into excess reserves it’s not really part of the quantity of money. Tell that to the owners.)

      • skylien says:

        Right, reservation demand should not be ignored, even if it doesn’t show up in GDP or the CPI.

      • Cosmo Kramer says:

        “So if the Fed just erased all those entries for the banks’ deposits, nothing would happen, right?”


        Although Edward’s statement ignores what would have happened to the CPI absent of Federal Reserve intervention……

  37. Anthony Lima says:

    I guess inflation, in economics, really doesn’t mean anything anymore.

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