(Good & Bad) Inflation & Deflation

As Jörg Guido Hülsmann posits in The Ethics of Money production, ‘inflation’ today has two meanings:

We can define it as an extension of the nominal quantity of any medium of exchange beyond the quantity that would have been produced on the free market. This definition corresponds by and large to the way inflation had been understood until World War II. Yet it differs from the way the word ‘inflation’ is used in contemporary economics textbooks and in the financial press. Most present-day writers mean by inflation a lasting increase of the price level or, what is the same thing, a lasting reduction of the purchasing power of money. Let us hasten to point out that, as far as mere vocabulary is concerned, both meanings of the word are perfectly fine, if only they are used consistently.

So it is with this research. Though the author prefers the first, classical definition of inflation, it is unavoidable with current lexicon that we must be consistent and understood within the context of modern ‘central bank speak’ and the financial press.

• Supply inflation: Money growth, money production, etc.
• Price inflation: Price growth, increase in prices, etc.

Deflation, of course, is simply the opposite of these two terms (a decrease in the money stock, or a decrease in the general price level).

The four quadrants below do have elements of both types of inflation / deflation. However, note that the headline title refers to Good & Bad Price Inflation. As well, the dark-shaded quadrant shows what we have already established is the focus of this research; that is, money production which is beyond the scope of market demand, supplied under fiat monopoly, by the central bank:

All of these terms will be used (hopefully consistently) across this research: