Inflation (basic Macro)

[magus341]

Inflation is a process of continuous increase in the overall level of prices. Relative price shifts (one good's price goes up, but another's goes down by a similar magnitude) are not inflation. The average price of all goods must go up to qualify. Inflation is caused by too much money chasing too few goods. If the value of goods produced

Comments

[psyllogism]

Is inflation a feature of only so-called "fiat currencies", or did we have inflation even back when we were on the "gold standard"? If there was inflation then, how was it different than inflation now?

Also, Wikipedia's articles on most very technical subjects is pretty bad. Experts in the subjects write them, at a level that only other experts can understand, and the introductory student is sadly left out :-(

[magus341]

Milton Friedman noted once that inflation is always and everywhere a monetary phenomenon. To a large degree, that is true. V is usually fairly stable over time, and in modern countries, Y tends to increase at around 2% a year. There were two major inflationary periods in areas with gold standards. Spain suffered from continual inflation when they were extracting gold from South America. They were under the impression that more money led to more wealth. It was this fallacy that Adam Smith was addressing with the title of his magnum opus "An Inquiry in the the Nature and Caufes of the Wealth of Nations" - it is their production, not their money supply. The next period was the U.S. gold rush, where the amount of gold expanded fairly rapidly. It wasn't until very recently (1982 and after) that central banks created institutional arrangements that were effective in preventing fiat currencies from leading to high inflation.