Definitions

Here is a Post which subconsciously declares a need for Definitions of some of Our most-used terms. The Angry Economist asserts that Inflation is only an increase in the Money Supply. He himself fails to understand that the study of Prices holds the only true evaluation of such Inflation. Many ignore the real impact anyway, which expresses a misallocation of monetary payments for Resources or Production processes. One has to understand that any Economy (even Command economies) is a fluid stream of Extraction, Production, and Distribution processes acting concurrently. Inflation consists of the temporary excess payments to sectors, which bleed over into the general economy as increased overall Prices. This definition becomes important with the Conditions I hope to elaborate clearly.

Recessions remain a basic misallocation of Production and/or Distribution. The Economy has been flooded with a group of Goods and Services for which there is insufficient Consumer Demand, where this Production and Distribution will not be financed by Consumer purchase in an economically efficient Time frame. This erroneous Production/Distribution schedule will have already generated, or will generate, a shortage of Production/Distribution efforts which are necessary for other sectors to maintain adequate Production and Distribution for their full Participation within the Economy. The final Result causes a reduction in two areas: the first in the Production/Distribution schedule which is not financed in efficient Time, the Second in the less than full Participation of the sector shorted. It is this Double-Whammy which heats (accelerates) the economic downturn in the flow of Goods and Services.

Inflation is the simple flow of Funds into sectors where there exists inefficient allocation of Resources, due to the fact that shortage of Production or Distribution has created an artificial Consumer Demand for Product or Services which are needed; thereby raising the Price level for the sector. It also raises the Price Schedules of the Consumers of the artificial high-Priced Demand, as they transfer their excess Costs forward. Purists might say only this later Event of raised Price Schedules due to increased Costs stands as the only true Inflation, but the Generative factor should also be included; else the major driving force for the Inflation is ignored.

Blaming Government for Inflation because of their control of the Money Supply remains a futile effort. First because Government has marked less control over the Money Supply than a lot of Economists would claim. The greatest fuel in Money generation is in the increase of Demand Deposits banked; Governments unable to control this avenue except with extremely high taxation, which is in itself a Drive for Inflation. The second element to Government ineffectiveness lay in their own Expenditures, which are again an artificial Consumer Demand for the entire range of Goods and Services; bringing on sector shortages and higher Pricing. Government is bad, and Some might say evil; but is not some malicious Force trying to destabilize the economy, though sometimes One has to wonder. lgl