What is Inflation? – Numismatic news

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What is Inflation? In order to have a meaningful discussion about it, you must first define it.

In classical economics, inflation has two general definitions: 1) an increase in the money supply, or 2) an increase in the money supply greater than the increase in the production of goods or services. Almost always, when you have a greater amount of money in search of goods and services, the costs of raw materials, labor, overhead and capital costs increase, resulting in a rise in consumer prices. The rise in prices is the result of the effects of inflation and is not itself inflation.

The rise in prices, if you look at it in the opposite direction, reflects a decline in the purchasing power of the monetary unit.

Because of the close association of money supply inflation and rising prices, today a high percentage of people consider rising prices themselves to be what they mean by inflation. Even the definitions of the word “inflation” will list this characteristic.

In my writings, I want to avoid confusion. Therefore, I try to avoid using the term “inflation” in a vacuum. Instead, I refer to either “money supply inflation” or “price inflation”.

Coins were created to facilitate trade through the use of standardized monetary units. Initially, the values ​​depended only on the value of the metal in the coins.

Unfortunately, money supply inflation has been around almost since the first coins were minted over 2,600 years ago. Just to give you an example, here’s how ancient Rome experienced money supply inflation (currency depreciation) over time, as evidenced by the silver denarius and its successor, antoninianus (declared by law to be equal to two of the denarius):

211 BC. AD: introduction of the denarius – 4.55 grams of 95-98% pure silver

44 BC AD: Julius Caesar – 3.9 grams of 95-98% pure silver

AD 64: Nero – 3.41 grams of 93.5% pure silver

148 AD: Antoninus Pius – 3.41 grams of 83.5% pure silver

235 AD: Severus Alexander – antoninianus (double denier) – 3.41 grams of 50% pure silver

238 AD: Pupienus – antoninianus – 2.6 grams of 2% pure silver

274 AD: Aurelian – Antoninianus – 3.41 grams of 5% pure silver

In the Middle Ages, a common practice was to shave the metal off the edges of coins, called clipping, in order to then put the smaller coin back into circulation. When done by order of the ruler, the recovered metal was usually used to mint more coins to increase the money supply.

Today, with global monetary units no longer tied to fixed weights and purities of precious metals, governments can more easily inflate the money supply by simply minting more base metal coins or printing more currency or, even more easily, by simply entering accounting entries on a computer.

Throughout history, money supply inflation has been a common cause of the collapse of various forms of money. It’s even going on here in America, where the purchasing power of the US dollar has fallen over 98% against an ounce of gold since the start of 1933.

Patrick A. Heller has been honored as a 2019 FUN numismatic ambassador. He is also the recipient of the American Numismatic Association’s 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including in 2021 for Best Investment Newsletter), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications manager for Liberty Coin Service in Lansing, Michigan, and writes Prospects of freedoma monthly newsletter on rare currencies and precious metals. Past issues of the newsletter can be viewed at www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That You Don’t, and Important News You Need to Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which broadcasts in live and is part of the audio archives published on www.1320wils.com).

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