Inflation is caused by inflation

A couple silly observations today:

1.  Paul Krugman recently noted that many people insist on defining the term ‘inflation’ as a rise in the money supply.  I’ve noticed this too.  But I’ve also noticed that these people sometimes refer to rising prices as inflation.  Hence the title of this post.

2.  I’ve always dreamed of being informed by someone with a Scandinavian accent that I had been awarded a Nobel Prize in Economics.  And now my wish has come true!


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9 Responses to “Inflation is caused by inflation”

  1. Gravatar of Rien Huizer Rien Huizer
    9. October 2011 at 06:32

    Scott,

    My sincere congratulations. Well deserved! Better spend the prize quickly before inflation makes it disappear. All economics should be as easy as the US’.

  2. Gravatar of Mr. Winston Mr. Winston
    9. October 2011 at 06:42

    Promise to stay true to the data and not some pompous political hack pretending to make economic arguments.

  3. Gravatar of Andy Andy
    9. October 2011 at 08:02

    We need a Krugman/Sumner debate on liquidity traps

  4. Gravatar of Lars Christensen Lars Christensen
    9. October 2011 at 08:10

    Scott, you are welcome – it is well deserved;-)

  5. Gravatar of Scott Sumner Scott Sumner
    9. October 2011 at 17:26

    Rien, Thanks, I’m so excited that I’ve been calling all my friends with the wonderful news.

    Winston, I’ll try.

    Andy, We’ve had them already, in the blogosphere.

    Lars, Thanks for bringing me the wonderful news. I know that all you Scandinavians know each other, so I assume the secret leaked out.

  6. Gravatar of Russ Anderson Russ Anderson
    10. October 2011 at 06:44

    Scott wrote “many people insist on defining the term ‘inflation’ as a rise in the money supply. I’ve noticed this too.”

    The Ludwig von Mises Institute (for one) spread that misinformation. Here is an example stating “the essence of inflation is not a general rise in prices but an increase in the supply of money”. (http://mises.org/daily/908)

    Ludwig von Mises himself wrote in 1942: “Everybody knows that inflation consists of a large increase in the available quantity of money and money substitutes such as bank credits.” (http://mises.org/efandi/ch18.asp)

    Give credit (or in this case blame) were credit is due.

  7. Gravatar of Scott Sumner Scott Sumner
    10. October 2011 at 09:22

    Russ, Thanks for that info.

  8. Gravatar of Greg Ransom Greg Ransom
    10. October 2011 at 21:39

    “People insist on defining the term ‘heating” as a speeding up of the motion of molecules.  I’ve noticed this too.  But I’ve also noticed that these people sometimes refer to rising temperatures as “heating”.

    Hence, “heating” causes “heating”.

    And visa versa, and multiple variations as well.

  9. Gravatar of Scott Sumner Scott Sumner
    11. October 2011 at 18:23

    Greg, Bad analogy. Your two versions of heating are two sides of the same coin, but as the Japanese have shown, rising money supplies don’t always mean rising prices.

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