Wednesday, November 16, 2005

Walter Williams on Inflation

For those of you not economically-versed enough to understand what does and does not constitute "inflation", Walter Williams lays it out nice and simple. He explains:
One price or several prices rising is not inflation. When there's a general increase in prices, or alternatively, a reduction in the purchasing power of money, there's inflation.
To make it even easier, he includes Milton Friedman's quintessential defention of inflation:
[I]nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.
There you have it, inflation in a nutshell. So when you hear people bellyaching over the price of oil and gasoline, you tell them it doesn't matter so long as the Fed maintains our purchasing power.

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