Did the dictionary definition of inflation change in the late 1980's?
Thursday April 17, 2008
One reader is upset with our economics glossary definition of inflation. He writes:
I would be surprised if a dictionary in, say, 1960 gave a monetary supply definition of inflation. Since I don't have a dictionary from 1960 lying around, though, I cannot check this. Can anyone confirm or deny that the dictionary definition of inflation was consistent until the late 1980s, after which any reference to the money supply was omitted?
I suppose if you are using the new definition, according to Merriam Webster’s dictionary, inflation is the increase in the price of a basket of goods. However, for hundreds of years the inflation – even in Webster’s, was increasing the money supply. It seems like an odd coincidence that the definition was changed and that it just happens to prevent inquiring minds from figuring out that inflation is something the Federal Reserve knowingly does, rather than something that “just happens.”He is correct about the 1913 definition. But...
If you seek proof of this claim, simply look in an old dictionary. I know that as late as the 1980’s, inflation was still defined there as “increasing the money supply.” You will find the same definition in dictionaries from the 1950’s, 1930’s, 1913, and so on. It is only recently that the definition has changed. Didn’t George Orwell write about changing the meaning of words as a tool of the totalitarian state to prevent people from having ideas that were dangerous to the state?
I would be surprised if a dictionary in, say, 1960 gave a monetary supply definition of inflation. Since I don't have a dictionary from 1960 lying around, though, I cannot check this. Can anyone confirm or deny that the dictionary definition of inflation was consistent until the late 1980s, after which any reference to the money supply was omitted?
Comments
Webster’s New World Dictionary: College Edition, 1970:
1. an inflating or being inflated. 2. an increase in the amount of money in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices
Wow.. thanks Justin! Now I guess the question is, “Do modern dictionaries mention the money supply when discussing inflation?”
Actually the effect of inflation is things getting more expensive and not inflation itself. inflation is caused by an increase in available currency and credit beyond the proportion of available goods and services.
In other words, the common usage of the word inflation is actually “price inflation which is a result of monetary inflation,which means the government figuratively cranking up the printing presses and increasing the money supply.
In the late 70’s inflation was defined as…”too much money chasing too few goods”. The economics textbooks we used at university defined it that way. Today, money supply can be increased (without limit) because its value is no longer pegged to gold or silver. Banks today operate like dishonest goldsmiths in the past. Initially, when people made deposits of gold, the goldsmith would write out paper receipt (or gold notes) which could be redeemed by whoever presented them. These gold notes were then used as money to purchase goods and services. When the goldsmith realised that people were so used to trading with their paper notes and that they seldom withdrew their gold, he became dishonest. The goldsmith would write out more gold notes than could be redeemed from the amount of gold he actually had, and this was loaned out as new money. Without a gold reserve to back up the new gold notes, he was actually creating wealth out of nothing. All the new paper money became debt that the goldsmith could never pay back. On top of that, he charged interest on the loans/money that he created out of nothing. As the loans increased, the marketplace was flooded with this new money in the form of gold notes. This reduced their purchasing power and the devalued gold notes became worth less and less. When everyone tried to redeem their notes for actual gold the goldsmith ran out of gold, leaving those at the end of the queue with worthless paper IOUs.
Well, this is what’s happening in today’s banking system as well because banks can lend out a lot more than the actual deposits they have. There’s a debauching of currency resulting in a devaluation of its purchasing power that produces inflation. If it gets that bad, it’d cause a run on the bank! Being able to simply print more money adds to the problem as well as it truly results in too much money chasing a limited supply of goods and services.
I cannot say much about the dictionary definition of inflation but if you check the economic textbooks of the 70s, you’d see that inflation was linked with money supply.
In my opinion, the definition has certainly been tweaked over time.
So now that your erroneous definition of inflation has been pointed out, do you intend to do anything about it? I notice the definition has not been changed.
It’s now mid October 2009 and the definition still has not been corrected.
Saying inflation is rising prices is akin to saying rain is wet streets. The wet streets are the result of the rain; the rising prices are a result of the inflation of the money supply.
Read the first paragraph of this NY Times article where they acknowledge that the inflation under Carter was created by the Fed printing money: http://www.nytimes.com/2009/05/04/opinion/04meltzer.html?th&emc=th
I have loads of other articles from just the NY Times acknowledging the same thing. Read this long article explaining how the Fed created the inflation by flooded the economy with easy money and cheap credit to swing the 72 election for Nixon: “President Nixon, concerned that high unemployment could cost him re-election in 1972, told (Fed Chairman Arthur) Burns to concentrate on revving up the economy. ‘No one ever lost an election on account of inflation,’ Nixon confidently told him. Burns did as he was directed. An eventual result was runaway inflation…”
http://www.nytimes.com/2008/01/20/magazine/20Ben-Bernanke-t.html?th&emc=th
The evidence goes on and on. From the Roaring 20’s to the Housing Bubble, the expansion of the money and credit supply is the inflation, both across the board and, at times, more specifically in one segment of the economy (stocks in the 90’s; houses in the 00’s).
Classical economics DEFINES inflation as the “expansion of money supply (and credit)”. This definition appears to have been first corrupted by David Laidler around 1975, when he stated that:
“Inflation is a process of continuously rising prices, or equivalently, of a continuously falling value in money.”
Of course, “continuously falling value in money” is fiat currency debasement (inflation); so what appears to have happened is that the 2nd part of the “definition” has been conveniently dropped over time, probably for political expediency.
The obvious problem with Laidler’s definition, apart from the fact that Inflation already had a formal, precise meaning, is that prices can change for many reasons, although money supply expansion will almost inevitably lead to price rises over time.