Absolutely awesome! This really nails it and is the best and briefest definition of this problem I've ever seen. And, more importantly, it highlights all the damage inflation does via malinvestment and unfair wealth transfer, which is truly far more significant to the overall health of our economy and, frankly, our society. Perhaps you could develop or use an already developed measure of money supply and put the increases of that out at the same time the government publishes the CPI to demonstrate what is really going on vs. what the government would like to con you into believing.
Thanks, Russell! Measuring the money supply objectively is a tricky operation. I made my own attempt in Appendix 2 of my book, but I think my work is incomplete. Some Austrian economists attempt to adjust the money supply with some success. You might want to try the substack letter "AAS Economics," operated by a veteran Austrian, Frank Shostak.
Excellent article. One of the things I appreciate most is that it returns the discussion of inflation to first principles. Too much economic commentary today is consumed with debating statistical outputs while neglecting the more fundamental question of what inflation actually is. By focusing on definitions, causes, and incentives rather than merely on reported numbers, you bring the conversation back to where it belongs.
One thought that came to mind while reading was George Orwell's observation that language is never neutral. Whoever defines the terms of a debate often shapes the debate itself. The discussion around inflation is a good example. If inflation is defined as rising prices, attention naturally focuses on measuring prices. If it is defined as an expansion of the money supply, attention shifts to monetary policy. That is why definitions matter so much. They do not merely describe reality; they influence how people understand it and where they look for explanations.
My second thought concerns incentives. Whenever a statistic evaluates an individual or institution, there is an almost unavoidable temptation to emphasise the measure that casts performance in the most favourable light. This is not necessarily evidence of bad faith; it is simply human nature. Investors encounter this constantly in corporate reporting, and policymakers are no different. For that reason, I believe it is always wise to look beyond any single headline number and ask not only how it is calculated, but also what incentives may influence its construction and interpretation.
Hi Jim, excellent piece, thank you. I have long ago learned this. Now, the point you make is not that the general price level increase is a symptom (effect) of inflation and not inflation itself. What you say is something more, and I think it has to be stated explicitly and underscored: that the general price level increase is always a symptom, but can be symptom of something else than inflation - if prices generally rise due to (caused by) other factors, say, major energy supply shock which has nothing to do with inflation. There is no inflation involved in this case, i.e. no part of causality here. Right?
Jim, I think this is your all-time best post. I got a lot out of it. I wish had a giant reach and could get millions of people to read it and understand it.
Absolutely awesome! This really nails it and is the best and briefest definition of this problem I've ever seen. And, more importantly, it highlights all the damage inflation does via malinvestment and unfair wealth transfer, which is truly far more significant to the overall health of our economy and, frankly, our society. Perhaps you could develop or use an already developed measure of money supply and put the increases of that out at the same time the government publishes the CPI to demonstrate what is really going on vs. what the government would like to con you into believing.
Thanks, Russell! Measuring the money supply objectively is a tricky operation. I made my own attempt in Appendix 2 of my book, but I think my work is incomplete. Some Austrian economists attempt to adjust the money supply with some success. You might want to try the substack letter "AAS Economics," operated by a veteran Austrian, Frank Shostak.
Excellent article. One of the things I appreciate most is that it returns the discussion of inflation to first principles. Too much economic commentary today is consumed with debating statistical outputs while neglecting the more fundamental question of what inflation actually is. By focusing on definitions, causes, and incentives rather than merely on reported numbers, you bring the conversation back to where it belongs.
One thought that came to mind while reading was George Orwell's observation that language is never neutral. Whoever defines the terms of a debate often shapes the debate itself. The discussion around inflation is a good example. If inflation is defined as rising prices, attention naturally focuses on measuring prices. If it is defined as an expansion of the money supply, attention shifts to monetary policy. That is why definitions matter so much. They do not merely describe reality; they influence how people understand it and where they look for explanations.
My second thought concerns incentives. Whenever a statistic evaluates an individual or institution, there is an almost unavoidable temptation to emphasise the measure that casts performance in the most favourable light. This is not necessarily evidence of bad faith; it is simply human nature. Investors encounter this constantly in corporate reporting, and policymakers are no different. For that reason, I believe it is always wise to look beyond any single headline number and ask not only how it is calculated, but also what incentives may influence its construction and interpretation.
Thanks Jim for the post.
Inflation has always been an age old weapon (tax) to justify the control grid.
However, the rules are being redefined, along with the inputs.
Inflation aside, GDP will be retooled to include AI infrastructure along with technology workers and others.
Once this is formalized the FED will have new tools at it's disposal.
Will it be a game changer? or just another kick of the can down the road?
One can hope the former, for the sake of the nation.
https://www.stlouisfed.org/on-the-economy/2026/jan/tracking-ai-contribution-gdp-growth
https://economics.mit.edu/sites/default/files/2024-04/The%20Simple%20Macroeconomics%20of%20AI.pdf
Hi Jim, excellent piece, thank you. I have long ago learned this. Now, the point you make is not that the general price level increase is a symptom (effect) of inflation and not inflation itself. What you say is something more, and I think it has to be stated explicitly and underscored: that the general price level increase is always a symptom, but can be symptom of something else than inflation - if prices generally rise due to (caused by) other factors, say, major energy supply shock which has nothing to do with inflation. There is no inflation involved in this case, i.e. no part of causality here. Right?
Jim, I think this is your all-time best post. I got a lot out of it. I wish had a giant reach and could get millions of people to read it and understand it.