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Duck Tales Inflation Lesson
Disney

No term in the "dismal science" of economics is more misunderstood than "inflation." The word means "rising prices," but is used at different times by different people to describe totally different phenomena.

The most predominant type of inflation is natural and occurs as raw materials are used up and must be replenished. It's akin to the law of diminishing returns, or entropy, and is overcome by technological innovation. Another type of inflation is expressed through constantly changing conditions of supply and demand, including the fluctuating cost of labor. Yet another type results from the predatory pricing practices of monopolies such as the worldwide oil cartel which has jacked up the cost of petroleum to over $80 a barrel.

Of an entirely different order are the inflation induced by central banks such as the Federal Reserve in creating financial bubbles or by the federal government in taking inflationary actions such as annually compounded increases in government employee salaries to reduce the real cost of servicing its astronomical debt. These instances might actually be viewed as "high crimes and misdemeanors" which violate the due process clause of the Constitution by unlawfully destroying the value of citizens' property.

In any case, inflation is a fact of life that is almost impossible to control, let alone understand in all its complexities and details. This article focuses on inflation as it is treated by the official monetary system.

So let's talk about money. Money is obviously an indispensable component of our economic system. If it is properly constituted and managed, it has the ability not only to command goods and services produced and traded within the system, but also to encourage and call forth new types and quantities of production. The presence or absence of sufficient quantities of money, how it is created and introduced into circulation, how its value is established and maintained, and how it is used or not used to further the ideals of society are critical issues that properly should fall within the purview of political debate.