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43. “The Definition of Inflation According to Mises: Implications for the Debate on Free Banking”
by Nicolás Cachanosky
Abstract: The discussion of what is and what is not inflation has become central among the Austrian economists in their debate between free banking with fractional reserves versus banking with 100-percent reserve. Many Austrians also turn to the writings of Mises to find out what the dean of Austrian Economics thought about inflation, but there is no agreement on the interpretation of his writings either. This article tries to contribute to the interpretation of Mises’ concept of inflation.
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“Inflation may be defined as any increase in the economy’s supply of money not consisting of an increase in the stock of the money metal.” – What has Government Done to Our Money? p. 43. Murray N. Rothbard
[...] Libertarian Papers article: “The Definition of Inflation According to Mises: Implications for the Debate on Free Banking,” by Nicolás [...]
It seems to me this article points to the real issue of what are the correct symantics when trying to debate the issue of fractional reserve currency vs. “real” money. Money (whether paper or metal) has no intrinsic value except as a medium of storage and exchange. If a change in money supply had no effect on the exchange, who would care how much money existed?
The issue is not inflation or deflation of the supply but the devaluation of the medium. Inflating the supply without a supporting increase in assets necessarily devalues the unit of exchange. Where the fractional reserve currency causes havoc is in its ability to generate this “inflation” just as any occurrence that allowed an unrestricted supply of gold to be created would devalue its unit of exchange.
Thus “Inflation” is not a sufficiently correct term to use in this debate. “Devaluation” more precisely frames the issue.
While you are correct philosophically, the term “devaluation” is usually reserved to describe the action of the currency issuer (usually a government) once it becomes painfully obvious to everyone that “inflation” of the currency by the government has led to a clear decline in the “value” of the currency as a medium of exchange. Mexico, for example, has gone through numerous official “devaluations” of the Peso.
…
Estimado amigo, como puede Usted denominar socialista a M N. Rothbard en su conferencia en el Instituto de Empresa de Madrid. Yo creo que a Rothbard se le puede llamar de todo menos Socialista. Es una pena que los pocos amantes de la libertad economica usen su tiempo para atacar o insultar a los defensores de la libertad
Allow me to add a few comments.
In the late 1960s Percy Greaves [Percy L. Greaves, Jr.] compiled a rather thorough glossary of terms and words as used by Ludwig von Mises in Human Action. The glossary was in rough form at the time and Mr Greaves gave me a copy. Each and every entry had been reviewed and approved by von Mises. Within that glossary there in no specific entry for “inflation” nor for “deflation.” However, during one of my visits with Leonard Read at FEE, Mr Greaves was there with us and these specific terms came up. It seemed to them [Mr Read and Mr Greaves] somewhat obvious that von Mises would define inflation as being an increase in the supply of money and credit (those were the exact words of one of them, can’t remember which one). A few years later Mr Greaves had printed in hard cover form the glossary. Mises Made Easier, A Glossary For Mises’ Human Action, is the title. In that book is contained a definition, approved by Mises, of inflation as well as deflation. I don’t know if this book is still available. I have both the draft given to me by Percy Greaves as well as the hard cover edition. Should you be interested in the entries, please drop a line.
Hi Charles
I would be most interested in those definitions you refer to. I am currently writing a chapter for a book on inflation.
My email is:
daniel.goulding@rbsmorgans.com
Cheers
Daniel
Dear Mr. Sebrell,
Thanks for your interest in the topic and sharing this information. I’m interested in the material you mention.
Best Regards,
Nicolas Cachanosky
ncachanosky@suffolk.edu
An increase in supply of money at near zero marginal cost