You may recall that I have frequently argued that inflation is a useless concept. It’s not that we can’t construct rough estimates of the average rate of price change. We can. Instead I argue that there is no “true rate of inflation” out there to be measured. Any measure is an arbitrary social construct. So any defense of inflation must rely on pragmatic arguments. And for almost every use of ‘inflation’ there is a more appropriate variable (usually NGDP growth.)
Von Mises felt the same way. Here’s Joseph Salerno:
By the time Human Action was published in 1949 (actually, by 1940 when the German-language forerunner to Human Action, Nationalökonomie, was published) Mises had come to recognize that the concept of inflation was completely empty and useless for the purposes of technical monetary theory. For the later Mises, it was impossible to separate the effects on market prices of monetary influences from the effects of “real” influences emanating from the markets for goods. The supply of and demand for money were intertwined with the supply of and demand for every good, because goods and money were ranked together and compared on individuals’ value scales. Any change in the demand for money inevitably affected the relative demands for the various goods, and vice versa.
Just in time for my January debate with Bob Murphy. (I should have kept this secret, and sprung it on Bob.)
PS. I said “almost every use” because there is one valid use of inflation. Take the rate of NGDP growth per capita and subtract out your subjective estimate of how much NGDP growth would have left us equally happy as before. The difference is inflation. But inflation still doesn’t have practical value, it’s merely your personal estimate of how much of the increase in NGDP is not “real.”
HT: Derrill Watson
PS. I just noticed this in a Nick Rowe post:
And I have sympathy with Scott Sumner’s approach too, in trying to ban the use of the “i-word”, and talk about NGDP instead.
Actually there are three i-words that need to be banned; inflation, income and interest rates. And they need to be replaced with NGDP growth, consumption, and asset prices.
At first they call you crazy . . . . and in the end they say “we knew that all along.” (I can’t recall the exact quotation.)