Concepts
Inflation
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Inflation is a sustained rise in the general level of prices in an economy over time, which reduces the purchasing power of a given unit of currency. Economists measure inflation using price indexes that track the cost of a representative basket of goods and services, and they distinguish inflation caused by excess demand relative to available output from inflation driven by rising production costs. Monetarist economists, most influentially Milton Friedman, have argued that sustained inflation over any long period is fundamentally a monetary phenomenon, produced by growth in the money supply that outpaces growth in real output, a view that shaped central bank practice from the late twentieth century onward even as other schools continue to emphasize additional causes in particular episodes.
Facts
Origin YearMarks when 'inflation' entered English as a direct reference to currency depreciation, following the proliferation of private banknote currency during the American Civil War (1861-1865); the underlying quantity-theory analysis of prices and money supply is far older, with early formulations dating to the price revolution of roughly 1550-1700 and further development by David Hume and David Ricardo. No single economist is credited with proposing inflation as a concept, so proposed-by is left unwritten rather than naming one arbitrarily. SignificanceKeeping inflation low and stable is treated as a central task of economic policy today, usually assigned to a central bank through its control of monetary policy. 2 Cross-Tradition Connections
Associated With
The Bank of England's Monetary Policy Committee targets two percent inflation as measured by the Consumer Prices Index, a mandate set for it by the UK Treasury.
The European Central Bank's primary mandate is price stability, which it pursues through an inflation target close to but below two percent for the euro area.
Held Differently
Why this is disputed. Keynesians read inflation as arising from demand-pull or cost-push pressure specific to circumstances, a different causal emphasis from the Monetarist claim already on record here that inflation is always and everywhere a monetary phenomenon.
Associated With School
Milton Friedman argued that sustained inflation over any long period is fundamentally caused by growth in the money supply that outpaces growth in real output, a view central to Monetarist economics.
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