<p>In the past, before 19th century, inflation originally referred to increase in the amount of money in the circulation (<a href="https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation-pdf.pdf" rel="nofollow noreferrer">Bryan, 1997</a>).</p>
<p>Under gold standard a distinction was often made between money (gold/silver or other coins) and paper currency (bank notes). It was often observed that increase in the paper notes in relation to the former lead to these notes having worse purchasing power and this used to be what inflation referred to (ibid).</p>
<p>However, in modern fiat monetary systems such distinction does not make sense. At the same time, quantitative theory of money was very dominant at the time, which suggests there is a close link between quantity of money and price inflation. As a result of a confluence of these two factors inflation was redefined to mean the change in price level as opposed to quantity of money (ibid).</p>
<p>This also happened at the time when economics became more rigorous and mathematized, and hence the new definition became entrenched, since once something has rigorous mathematical definition it becomes very cumbersome to come up with new definitions while maintaining link to broader literature.</p>

CC BY-SA 4.0
2024-12-24T02:27:19.927Z
2024-12-24T02:27:19.927Z
1muflon1
<p>You are not wrong. Inflation is in fact blowing up of money. But, it is the blowing up of the exchange value of money in the market over a wide range of goods and services. Also, let's look at the other side, where money has physically blown up or in other words, the supply of money has increased in the market. In this case, economy has more money, which implies the people have more money to spend which in turn implies that, a lot of people will be demanding a lot of stuff at the same time which will jack up the prices of a lot of goods at the same time. Thus, &quot;inflation&quot;.</p>
<p>P.S: Just ask your questions. What's the worst that can happen? Standards in most cases are hyper-inflated;)</p>

CC BY-SA 4.0
2024-12-24T16:26:38.630Z
2024-12-24T16:26:38.630Z
ss91
<p>Prices respond to supply and demand which can vary for reasons in addition to the amount of money. An increased money supply shifts the demand curve and erodes the purchasing power of the seller if prices remain constant, and sellers therefore tend to track inflation and increase prices as necessary. The concept of a <a href="https://en.wikipedia.org/wiki/Market_basket" rel="nofollow noreferrer">basket of basic goods</a> was developed to track changes in average consumer prices, which need not change only due to increases in the money supply (they could change for <a href="https://www.forbes.com/sites/georgecalhoun/2023/09/24/what-is-structural-inflation-pt-1-a-compelling-case-study/" rel="nofollow noreferrer">structural reasons</a> unrelated to the money supply).</p>
<p>An immediate effect of a larger money supply is a change in the exchange rate of a currency. This is particularly useful in small economies largely reliant on imports and exports. Businesses often use exchange rates as a proxy for inflation and pegging or setting prices in more stable foreign currencies (those of nations not undergoing rampant inflation) is one way to attempt to track inflation or (in the case of pegging) circumvent the need to reset prices under inflation.</p>

CC BY-SA 4.0
2024-12-24T09:29:21.340Z
2024-12-24T09:38:16.707Z
2024-12-24T09:38:16.707Z
Buck Thorn
<p>I'm new here, and if this question does not meet the standards, just tell me and I will delete it.</p>
<p>I always have problems with the word &quot;inflation&quot;, because semantically &quot;inflation&quot; is a blowing up of an amount, and I would think it would refer to the blowing up of money available. Instead, inflation commonly refers to rising prices.</p>
<p>Please help me improve my understanding.</p>

CC BY-SA 4.0
2024-12-24T16:28:24.943Z
Lots of things can inflate: prices, balloons, egos, etc. Economists have arbitrarily chosen prices when they refer to inflation without qualification.
Barmar
<inflation><soft-question>
Inflation: difference between rising prices and rising amounts of money
Gyro Gearloose
# Inflation: difference between rising prices and rising amounts of money

(Asked by: username_0 on 2024-12-24)

I'm new here, and if this question does not meet the standards, just tell me and I will delete it.

I always have problems with the word "inflation", because semantically "inflation" is a blowing up of an amount, and I would think it would refer to the blowing up of money available. Instead, inflation commonly refers to rising prices.

Please help me improve my understanding.

**Tags:** inflation, soft-question

> **Comments:**
> **username_1**: Lots of things can inflate: prices, balloons, egos, etc. Economists have arbitrarily chosen prices when they refer to inflation without qualification.  

---

## 3 answers

### Answer by username_4 on 2024-12-24. Score: 2 | Accepted answer

Prices respond to supply and demand which can vary for reasons in addition to the amount of money. An increased money supply shifts the demand curve and erodes the purchasing power of the seller if prices remain constant, and sellers therefore tend to track inflation and increase prices as necessary. The concept of a [basket of basic goods](https://en.wikipedia.org/wiki/Market_basket) was developed to track changes in average consumer prices, which need not change only due to increases in the money supply (they could change for [structural reasons](https://www.forbes.com/sites/georgecalhoun/2023/09/24/what-is-structural-inflation-pt-1-a-compelling-case-study/) unrelated to the money supply).

An immediate effect of a larger money supply is a change in the exchange rate of a currency. This is particularly useful in small economies largely reliant on imports and exports. Businesses often use exchange rates as a proxy for inflation and pegging or setting prices in more stable foreign currencies (those of nations not undergoing rampant inflation) is one way to attempt to track inflation or (in the case of pegging) circumvent the need to reset prices under inflation.


---

### Answer by username_2 on 2024-12-24. Score: 2

In the past, before 19th century, inflation originally referred to increase in the amount of money in the circulation ([Bryan, 1997](https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation-pdf.pdf)).

Under gold standard a distinction was often made between money (gold/silver or other coins) and paper currency (bank notes). It was often observed that increase in the paper notes in relation to the former lead to these notes having worse purchasing power and this used to be what inflation referred to (ibid).

However, in modern fiat monetary systems such distinction does not make sense. At the same time, quantitative theory of money was very dominant at the time, which suggests there is a close link between quantity of money and price inflation. As a result of a confluence of these two factors inflation was redefined to mean the change in price level as opposed to quantity of money (ibid).

This also happened at the time when economics became more rigorous and mathematized, and hence the new definition became entrenched, since once something has rigorous mathematical definition it becomes very cumbersome to come up with new definitions while maintaining link to broader literature.


---

### Answer by username_3 on 2024-12-24. Score: 0

You are not wrong. Inflation is in fact blowing up of money. But, it is the blowing up of the exchange value of money in the market over a wide range of goods and services. Also, let's look at the other side, where money has physically blown up or in other words, the supply of money has increased in the market. In this case, economy has more money, which implies the people have more money to spend which in turn implies that, a lot of people will be demanding a lot of stuff at the same time which will jack up the prices of a lot of goods at the same time. Thus, "inflation".

P.S: Just ask your questions. What's the worst that can happen? Standards in most cases are hyper-inflated;)


---

