Peter Schiff: Getting the Definition of Inflation Right
What is inflation?
When analysts, politicians and pundits talk about inflation, they usually mean rising consumer prices as measured by the consumer price index (CPI). Peter Schiff and Jim Rickards debated this on Kitko news. Rickards also used this definition, insisting there is no inflation right now. Peter said, “Of course there is. The Fed is inflating like crazy.”
The ensuing debate led Peter to address the issue of inflation on his podcast. Peter called the modern mainstream definition of inflation a “false” definition.
During their debate, Rickards accused Peter of making up his own definition of inflation. But as Peter pointed out, the government is responsible for defining inflation as rising prices. The original economic definition of inflation was the expansion of the money supply and credit. In fact, if you look up the word inflation in an older dictionary, you will find this definition. Peter tweeted a photo of the definition in a 1913 dictionary – the year the Fed was created.
A follower just emailed me the definition of inflation from a 1913 edition of Webster's Dictionary, the same year the Federal Reserve was created. The Fed certainly had a good understanding of inflation back then. You'll notice that none of the three definitions mentions prices. pic.twitter.com/Y7eGQZuypK
— Peter Schiff (@PeterSchiff) August 13, 2020
You’ll notice this definition doesn’t even mention prices.
If you look at a dictionary from the 1970s, it does mention rising prices, but only as a cause of inflation – an increase in the amount of money and credit
In a nutshell, advances in the price level are not inflation. They are caused by inflation.
The government altered the definition to suit its purposes. The conventional definition is nothing more than government propaganda.
So, why does the government want to define inflation as rising prices?
Then it can pretend that it doesn’t cause it. If the government accepts the definition of inflation as an expansion of the supply of money, well everybody knows who is expanding the supply of money. It’s the Fed. So, when you have an accurate definition of inflation, then you know exactly who’s to blame. But if the government can fool people into believing that an effect of inflation is inflation, well then they can blame it on whoever is raising the prices.”
And that’s exactly what politicians do. They blame inflation on “greedy capitalists” or labor unions, or OPEC, or speculators, or even some other country.
The definition has simply been altered over time, but that doesn’t actually change the real meaning of the word. But this is what we see all the time, right? This happens with the Constitution – where definitions are changed. The government changes the way terms are defined, the same way that we measure economic statistics. The government changes the way inflation is measured. The government changes the way GDP is measured. The government changes the way unemployment is measured. They’re always changing the meaning of words to try to advance a political agenda. And that’s exactly what’s happened with the word inflation.”
Peter said no matter what the government does, people who understand what inflation is need to call it what it is.
I want to keep the original definition of inflation because that’s the key to understanding it. See, when you misdefine inflation as rising prices, the result is bad monetary policy and bad fiscal policy, because the government, the central bank, can keep on inflating. And if all they’re doing is looking at consumer prices and they don’t see them going up and they think, ‘Oh, there’s no inflation, they can keep on creating it. And inflation is doing a lot of damage.”
On top of that, the calculation of CPI is rigged and doesn’t even give an accurate indication of rising prices. Peter compared it to a thermometer that always reads 98.6. If you relied on it, you would never know anybody was sick.