Gold Investment

Austrians, such as most of us, believe that the definition of inflation is “the increase in money supply,” therefore the cause of inflation is “increasing the money supply.” Non-Austrian Economists tend to believe that the definition of inflation is “the increase in prices in a market,” and is caused by an increased demand for a market, or a decreased supply of that market (services or product). For them, inflation has more to do with increased demand/decreased supply than a change in the money supply.

Many of us Austrians can agree that inflation (the increase of money supply) usually causes some or many markets to move up in price as new money floods towards a fixed or previous supply of a market’s product or service, but inflation doesn’t necessarily cause ALL prices to go up. Over the past 2 decades, the money-supply-adjusted price of computers has tended to go down, which non-Austrians would call “deflation,” but we would call “price drops.” Even in an inflationary economy (i.e., the rising of the money supply), prices don’t always tend to go up. It is possible that new money is hoarded outside of the banking system (mattress, vault, wallets and purses locally and foreign lands, etc). It is possible that new money is deposited into accounts that have high reserve requirements and isn’t loaned out.