Debate topic: Inflation

There are two primary schools of economic thought. One which totally dominates all of our schools of higher education (I.E, Keynesianism), and one which is totally ostracized by our very same institutions of higher learning (I.E, Austrian Economics).

Definition #1: Per Keynesianism inflation is rather loosely to perhaps even mysteriously defined as "rising prices".

Definition #2: Per the Austrian school of economics inflation is precisely defined as the devaluation of (or debasement of) the currency.

By the Austrian School's measure, rising prices are merely a "symptom" of the disease we call inflation (I.E., rising prices are merely a symptom of the erosion of the purchasing power of the Dollar, and the erosion of the value of the dollar is most typically the end result of printing far too many of them, though it can also be the result of removing the base metallic value from a nations coins (this being debasement), as was done in the USA in 1964 when all of the silver was removed from them).

Which definition of inflation were you taught in school (or on the street, etc...)?

Which definition do you prefer, and why?

I prefer the Austrians because I like being right.

And I don't like the Keynesians because you can open the newspaper and see what they get you.

Here's a spin on the subject of inflation. Would you rather have endless 3% annualized inflation (I.E., what the current generations have grown up with, and thereby consider perfectly normal), or endless mild (say 0.5% annualized) deflation (that which generations gone by considered the norm)?

I.E, would you rather that your wealth be continually eroded (effectively taxed without your knowledge) as time goes by, forcing you to speculate and gamble upon future gains via all sorts of investment schemes in an endless attempt to retain the purchasing power of an ever dwindling asset, or that your wealth remained steady to slightly increasing in purchasing power over time with no need to gamble or speculate?

In the stable to mild deflation scenario, you could store your money in a mattress and 50 - 60 years later it would still be quite good money, but in the inflation scenario if you were to put your money in a mattress for 50 -60 years it wouldn't be worth much when you finally took it out.

Mild deflation is what we had under the monetary system that the Founders gave us. Inflation is an inherently necessary requirement of a fiat money system (the kind of system that the Federal Reserve has given us).

lsayre wrote:Mild deflation is what we had under the monetary system that the Founders gave us. Inflation is an inherently necessary requirement of a fiat money system (the kind of system that the Federal Reserve has given us).

If I remember Milton Friedman rightly he said that if an economy expands by, for instance two percent, there will be no inflation with a corresponding increase in the money supply and deflation if there is not. So with an expanding economy the government gets a free gift by expanding money without inflation. When you consider how much the economy has expanded the government has had a lot of free gifts in revenue yet still inflates the supply. It's just an easier tax to impose. Of course then there is also the interest to be paid on the make believe money to the Fed.

In school I was taught nothing about inflation; it was just something mysterious that just happened when companies raised their prices. Bad companies bad.