|| “Government,” observed the renowned Austrian economist Ludwig von Mises, “is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink.” Mises was describing the
curse of inflation, the process whereby government expands a nation’s money supply and thereby erodes the value of each monetary unit — the dollar, peso, pound, franc or whatever. It often shows up in the form of
rising prices, which most people confuse with the inflation itself. The distinction is an important one, because as economist Percy Greaves explains so eloquently, “Changing the definition changes the responsibility.”
Define inflation as rising prices, and like the clueless Jimmy Carter of the 1970s, you’ll think that oil sheiks, credit cards and private businesses are the culprits, and that price controls are the answer. Define inflation in the classic fashion as an increase in the supply of money and credit, with rising prices as a consequence, and you then have to ask the revealing question, “Who increases the money supply?” Only one entity can do that legally; all others are called “counterfeiters” and go to jail.
Economist Milton Friedman argued indisputably that inflation is always and everywhere a monetary matter. Rising prices no more cause inflation than wet streets cause rain.