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What Inflation Is Not

Johnny Harris, with just over two and a half million subscribers, is one of the rare independent journalists I enjoy watching. His latest video, titled "WT* is INFLATION? (and why is it rising?)" is now online, and it has now reached over a million views quickly in a matter of weeks - mainly thanks to it being a really hot topic. [1] Nevertheless, unfortunately, it was not very surprising that his video was a quick lesson on Modern Money Theory (MMT) instead of sound economics. This article's primary focus is to criticize the terrifying reach of state propaganda and how it manages to bend definitions and facts to suit itself. Meanwhile, we will discuss the definition and history of the word "inflation," which hopefully will give us a better understanding of the situation we are in. As George Santayana puts it, "Those who cannot remember the past are condemned to repeat it." However, this article will not argue about the fact that "money" and "currency" are different from each other and will use both words to mean "fiat currency," such as "US dollar."

If you have not watched the video, you can watch it by clicking here.

Before he gets into the actual content itself, he lays out four questions that he claims he is going to answer by the end of the video. These are as follows.

"What is inflation? Why is it rising? Why are people worried? Moreover, what do interest rates have to do with it?" [2] Elementary questions, nevertheless, the education system around the world tries its best to make them look very complex, which lays the foundation for state propaganda as the state finds the mission to explain economics to lay people in itself —quite ironic.

From the first fact he states, it should be evident that this video does not truthfully explain the situation - even if it is not his intention. "Inflation is when there is more money in the economy than stuff to spend it on." [3] He then simply tries to hammer the "definition" of inflation with an example so everyone will understand it, yet it is so blatantly wrong. Perhaps that is also why the "simple" definition is not doing it for many people. That is because the actual definition was slowly changed by the central bankers, like the people in Fed, to cause confusion. I will pause his example at 2:38 and explain what I mean by all of that since the rest of the example just goes into more detail.

Inflation simply is the increase in the money supply. Inflation is when the money supply is expanded through means such as printing more money, accumulating more debt, or sometimes increasing the number of digits on a computer screen. Inflation is when the money supply is inflated, not when the prices are rising. [4] This is the old, and the correct, definition of inflation. You can pick up an old dictionary and check it yourself. We did the work for you already: "inflation - … Sharp increase in the amount of money or credit causing advances in the price level." [5]

Now let us get a newer source to explain inflation: "Inflation is a general increase in the prices of goods and services in an economy." [6] Wikipedia cites three different government sources and one private source for this statement. By the Fed, U.S. Bureau of Labor Statistics, Cleveland Fed, and Brooking Institute. [7] Even before you check the mother website of all knowledge, Wikipedia, the father website of all knowledge, Google tells you straight when you search for "What is inflation?": "a general increase in prices and fall in the purchasing value of money." [8] One might quickly want to argue that the older or, the newer one is true, but taking a step back and asking, "Why did we change the old definition in the first place?" is necessary to get more insight.

Prices do not inflate, and neither does deflate. When you climb the stairs, you do not inflate. A balloon does not inflate as it rises through the air. One might even jump into the conversation to say that it is the inflation of the balloon that causes it to rise. So by the first definition of the word, inflation cannot be the rise in something; it can only be a cause of a rise in something.[9] Such as inflation in the money supply would cause prices to rise. With such a simple explanation, one may expect that no one would use the word "inflation" to imply something is rising, such as prices. While this may be true for honest individuals, the problem is that this is doublespeak in play.

Central banks are basically the banks of their governments.[10] Today, it might also be said that their goal is "price stability" and "act in support of full employment."[10] There is plenty of evidence to refute these claims.[11] The actual goal of a central bank is to fund its state's expenditures, such as wars [12], through the means of inflating the money supply (also called "debt monetization")[13] or changing the interest rate.[14] Those are the sole tools of a central bank, yet they are enough to manipulate an economy however the central bank, thus the state sees fit. Nonetheless, it would be great if the central bank could conceal its capabilities so they do not have to take responsibility when, let's say, the prices start to rise because the money supply has been inflated. Perhaps because it was easier, they changed the definition of inflation in order to hide the effects of money printing and artificially low-interest rates. So how does the new definition of inflation help the central banks hide their influence over the economy?

Let us continue with the video till 3:05. The first thing to notice is that he explains the new definition of inflation reasonably well, perhaps more clearly than the sources cited in Wikipedia. The second, yet the more important thing to notice, is the time when he points out the inflation happening. It is right after the salesman states the obvious fact that he "should raise prices." The rest of the video might as well be just filler since Harris already helped the viewer conclude what central banks want the people to conclude; inflation is caused by the seller who wants to maximize profits instead of increasing the supply and becoming more productive. It is all because of these greedy business owners. Do not take my word for it. Check the comments under his video —sort by "newest first." I already counted up five comments that mention this is the case. Let me restate the argument they are trying to establish again. Inflation is not caused by the central bank; businessmen cause it. This is the made-up definition the state wants to promote, and Harris helps it spread, hopefully, unbeknownst to him.

The consequences are clear. Central banks can print infinite amounts of money as long as prices do not rise, and when they start to rise, they can claim it is the greedy rich that are gouging prices to make more money. This claim is blatantly wrong just by the Fed's own statistics. The reader can quickly check the PPI and CPI numbers from the St. Louis Fed itself to conclude that that is not the case. To put it simply, CPI, Consumer Price Index, is a tool to help the public, and policymakers, get an understanding of price increases the consumer feeling through market research. PPI, Producer Price Index, is the same, but for producers of goods and services. Basically, everything ranging from your pop-and-mom shop to Amazon Inc. The PPI value, when the index equals 100 on 2002 Jan 1st, has never been below CPI numbers. There is a 30% cost increase for businesses on top of the price increase consumer feels in 20 years, just under 1.4% per year on average. In the last 3 years, PPI outgrew CPI numbers by just under 20%.[15] That simply means the cost of doing business, whether you are small or large, is growing faster than the consumer prices, so the businesses are actually lowering their margins in order not to lose their customer base.

To summarize this part, the Fed manipulates the definition of inflation to stimulate the economy to create false economic growth. When the prices start to rise because of inflation of the money supply, the public blames the rising prices on businesses even though they are getting squeezed tighter than the customer. This is blatant malice in play, and there is no excuse for it.

From 3:15 to 3:18, Harris really hammers the "fact" down that inflation is when "all of the businesses in all of the industries raise their prices." Then he goes on to say, "It is a good thing … because it means that the economy is growing." giving an example of movie tickets rising 60 times - in a period that is not mentioned in the video, so we do not have a context that drives it home. Naturally, he also mentions that inflation (by that he means rising prices) "... is a natural part of the economy." and how it is "a good thing in small doses," to complete the quote we gave above. Additionally, this claim can be easily dismissed by the Real GDP growth data and the CPI data for Switzerland. As the empirical evidence below demonstrates, Switzerland saw continuous growth despite being in a deflationary period. Hence, as the evidence suggests, the economy does not need any inflation for economic growth; and suggesting that is nothing but a fallacy.

He justifies rising prices, which he again calls inflation, with some of the most common arguments such as "Economy needs to grow" and "If prices do not rise or, god forbid, decrease, the economy will go into a huge recession, and you would not want that would you." Naturally, they do not hold up to scrutiny since the total productivity of humanity is on average rising, which also includes the period before the invention of central banks.[16] So it is wrong to assume that the economy cannot grow without rising prices or inflating the money supply. In fact, it would only be expected for prices to fall, as we see in high-tech items just a few years earlier. As productivity increases, the supply of goods expands; thus, prices fall. Being productive is rewarded with a higher quality of living standards since each hour worked is now worth more. A counter-argument would state that economic growth is faster and steadier with the invention of central banks; however, that can also be proven wrong easily. For more information, the reader can check the following articles, which also refute the argument of "recession in lack of rising prices." [17]

Of course, to the layperson, it does not make sense at all since the arguments are faulty. However, even if they are assumed to be correct, for the individual itself, it is not very clear. Why would anyone ask for rising prices? Who cares about the economy? The only rise I want to see is in the price of my Doge coins, not in the price at the gas pump. Then there must be something wrong with the system. It seems like the free market actively screws the average Joe over, so Jeff can get even richer. Then the free market must be regulated. By which institution should it be regulated? The one and only, the state itself. All of this propaganda convinces the public that the more powerful the state, the happier the average Joe. I must sadly admit, it is working as intended. By changing a simple definition of a word, the state cleverly justifies its existence and the more power it accumulates.

From this point on, Harris argues that it is the state that gave out the public free money, mentioning several means of achieving this, such as stimulus checks, increased welfare, low-interest rates, etc., without once mentioning this was the point where inflation happened. Inflation happens when the money supply expands and that happens when the government prints money to give it out as stimulus checks and increased welfare. It is a dishonest way of taxing the low to middle-income class. Instead, he argues that it was "vital aid to people in need." That is not just factually wrong, but it also further justifies inflation and the state's extravagant spending. Naturally following that, since we have to blame the rising prices on someone, he says, "(Businesses) raise prices all at the same time, and that is inflation!". At this point, I want to take a break from the critique to appreciate the editing and the sound design of the video because if I did not know better, I would be convinced by now.

I must interrupt him when he asks, "What do(es) … the Fed has to do with all of this?" at around 5:20-5:30 mark because it shows that the Fed has successfully gotten itself out of the inflation talk. We are in the middle of a video that is meant to explain inflation, yet he questions the Fed's relevance to the topic. This further implies that the Fed has nothing to do with inflation when in fact, it is the only place where inflation can occur by the definition of inflation. In no modern country can you inflate the national currency yourself because it is a crime called counterfeiting. That is why the central bankers transformed the definition of inflation from "expanding the money supply" to "increase in prices of goods" in order to get themselves out of the inflation talk.

Continuing with the video, Harris first explains what a central bank is, then justifies its existence by the arguments which can be explained briefly by "Economy needs to grow, and people need jobs." We have already refuted these arguments, but to the unknowing layperson, this part justifies the central bank's existence and then goes on to claim it is a requirement for the healthy growth of a modern economy. Harris further explains the manipulation of interest rates and how the economy responds to it with a puppet master metaphor, which is spot on.

One more detail to be careful with at timestamp 6:19. It is clear that one of the "strings" the Fed is "pulling" is just called "Print Money," which is interesting because Harris can blatantly show it on display and get away with it, even though the Fed has nothing (!) to do with inflation.

At 7:06, Harris, for the fourth time, states that inflation is when businesses raise their prices. Once again, he justifies the Fed's existence by claiming that "... we fall into a … depression … which is exactly what the Fed is built to avoid". We have tackled this issue and figured out that was not the case earlier in the article. A national bank is yet another tool among many for the state to tax its people. After hoping that the Fed could get us out of this finicky situation, Harris finishes his explanation, which, I must say, was wishful thinking.

Before he ends the video, he mentions the really unfortunate case of socialist Venezuela and the collapse of its currency. He states that the fiat currency system used all over the globe is not as stable as it seems because it is not pegged to an actual commodity (such as gold). I think he is just so close to getting his head out of the blatant state propaganda, but I am genuinely disappointed that he could not put two and two together.

In the end, we got our promised answers to the 4 questions. They are crystal clear, and every single answer is just targeting business owners as the cause of the rising prices we are experiencing. Blame lands squarely on the people who are trying to actually contribute to society while the Fed continues to rob its people of their real purchasing power. All of this effort, so the state's legitimacy is saved. The house of cards stays stable for at least a little longer.

It is really a shame that Harris had fallen into such a deep trap and become the medium for state propaganda which has had severe consequences and continues to do so. I really liked his Assange video. Go check it out if you have not. I hope Harris can be more careful about this stuff in the future since I sincerely believe that he is an honest journalist. Keep up the excellent work, and always question when the state desperately wants you to believe in something.

Author: Hakan I.


Citations and Resources

4: Mises, "Ludwig von Mises on Money & Inflation," p22

5: The New Webster Encyclopedic Dictionary of The English Language, Processing & Books Inc., Copyright 1971.*

*Same year, the gold standard was ended.

Google claims that their "Definitions [are] from Oxford Languages."

11: Following are some of the easier-to-read examples; readers can find more detailed ones on a whim.

'"monetizing the debt" means money growth induced by attempts to moderate the effects of rapidly growing government debt on interest rates.' I would suggest the reader take a careful look at this article from the Fed.

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