INFLATION, DEFLATION
many believe that the definition of inflation is a rising money supply, or more dollars chasing the same or less number of goods. but as ahhaha has said, the last fifty years has shown little correlation between money supply and prices.
another definition is that inflation is a persistent general rise in prices over certain period of time. but does a persistent rise in prices (price inflation) accurately define inflation? i don't think so. i think quality and value should be involved in the calculation.
value is tough. it's kinda like porn. you know it if you see it. but in this case, i think its vagueness is its virtue.
price and value almost seem like opposites. an old saying is 'price is what you pay, value is what you get'. for me, it seems like the best way to understand value.
if quality and value are considered in defining inflation and deflation, it gets more complex but i believe it's more accurate.
consider a can of green string beans. in the packaging process the beans get washed four times. but as cost cutting measure, the manufacturer decides to only wash the beans three times. if the beans drop in price to reflect the lower quality, then the value remains the same. but if the price remains the same, the beans then have a lower value.
so my definition of inflation is:
a persistent decrease in value of goods and services over a certain period of time.
deflation is:
a persistent increase in value of goods and services over a certain period of time.
of course prices will still be the best rule of thumb measure because calculation of value is more involved and not really done that i know of. still i think it is helpful to keep in mind what the essence of inflation and deflation really are. most of often inflation will be reflected in price but certainly not always.
perhaps these definitions have all ready been written about somewhere. but i have looked at most definitions i could find on the internet and couldn't find any like this.
i'm very new to this stuff, so my take on inflation might be wildly off. opinions? |
