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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: benwood who wrote (75544)12/13/2006 4:44:21 PM
From: gpowell  Read Replies (2) of 110194
 
The Austrian definition of inflation, as I understand it, is a monetary phenomenon.

There isn’t really a consensus on the definition of inflation in the Austrian school. A younger Mises defined inflation in terms of the price level, but an older Mises defined it purely in terms of the stock of money. Rothbard defined inflation as an increase in money substitutes - in other words, an increase in base money is not inflation. Hayek used the younger Mises definition.

What sets the Austrians apart from neoclassical (monetarists are neoclassical) and classical theory is in a belief in the non-neutrality of money in the long-run, i.e. the belief that any increase in the money supply and credit has long-run effects on the economy. Currently, all economists believe that money stock fluctuations have short-term effects on relative prices, but many believe in the long-run neutrality of money. Consequently, money stock fluctuations will eventually be evident in the price level, but not in relative prices or real income. Austrians would argue that relative prices and real income are always and forever changed by money stock fluctuations. And thus we get to the belief by many Austrians that using index numbers (CPI for instance) can’t accurately measure the actual and potential impact of monetary injections.

The mere defintion of inflation, as should be evident, informs none of what really matters to Austrians.
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