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Inflation hawks say the Federal Reserve's easy-money policies will lead inevitably to an upward spiral in the prices of everything from bread to haircuts. Inflation doves say that if policy makers are careful, that doesn't have to happen.|
From the 19th century up to the Eleventh New Collegiate Dictionary Issued in 2003 WEbster's defined inflation as what happens when a country prints too much money, which is exactly what hawks worry the Feb's monetary stimulus is doing now.
But in 2003, the definition changed to "a continuing rise in the general price level," which is only "usually attributed" to an abundance of money, suggesting the doves could have a point.
Not everyone accepts the update. Michael Pento, an economist with Euro Pacific Capital, keeps a pre-2003 Webster's on his desk. Asked about the newer definition, he scoffs: "I take huge issue with that. They have everything upside down."
Most mainstream economists say it's the old definition that was off-base.
"They were quite far behind the times," says Harvard economist Greg Mankiw. In his widely used economics textbook, he defines inflation simply as "an increase in the overall level of prices in the economy."
As energy and commodity prices have heated up, the debate over inflation, and what causes it, has taken on new urgency. On Friday, the government said that consumer prices clicked up again in April.
Until the 19th century, when people talked about inflation they weren't referring to rising prices or a growing supply of money. In the English writer Samuel Johnson's 1775 dictionary inflation is defined as:"The state of being swelled with wind; flatulence."
Etymologists have long held that, as an economic term, inflation was American in origin, with its first known occurrence in an 1838 speech by New York State assemblyman Daniel Dewey Barnard. Mr. Barnard was worried that a new law required private banks to hold far too little gold in reserve against the money they issued, and that would lead to "an inflation of the currency, which is always a point of danger."
A search of texts scanned by Google Books yields several earlier uses of the term in an economic sense than Mr. Barnard's, and suggests that it may not have originated in the U.S. The earliest occurrence is in a footnote that Englishman Charles Robert Prinsep included in his 1821 translation of French economist Jean-Baptist Say's "Treaties on Political Economy." "The experience of English commerce has ... proved that a casual inflation of the price of domestic, and depression of that of external products, may be the basis of permanent commerce."
"Oh, wow-this is big stuff," says dictionary expert Michael Adams, an English professor at Indiana University. "Not an Americanism after all, and a significant antedating."
"Merriam-Webster eventually took note of how inflation's meaning had evolved over time."
Although from the state inflation appears to have been used to refer to both rising prices and an increase in the amount of money or credit, when it was first formally defined in Webster's American Dictionary of the English Language in 1864, prices had been scuttled. According to that dictionary, inflation is ;"undue expansion or increase, from over-issue, - said of currency."
That definition itself was greatly inflated when Merriam-Webster published the massive second edition of its New International Dictionary in 1934:
Disproportionate and relatively sharp and sudden increases in the quantity of money or credit, or both, relative to the amount of exchange business, Such increase may come as a result of unexpected additions to the supply of precious metals, as in the period following the Spanish conquests in Central and South America or the period following the opening up of large new gold deposits; or it may come in times of business activity by expansion of credit through the banks; or it may come in times of financial difficulty by governmental issues of paper money without adequate metallic reserve and without provisions for conversion into standard metallic money on demand. In accordance with the law of the quantity theory of money, inflation always produces a rise in the price level.
"What a beautiful definition," gushes Mr. Pento after hearing it. "it took us 80 years to unlearn what we knew back in the 1930s."
By the mid-20th century, when people talked about inflation-whether they were economists speaking at conferences or shoppers chatting in line at the grocery store - they were usually talking about higher prices. Along with the evolving meaning, there has been a shift in American thinking of the purpose of dictionaries: Rather than defining words as some experts thought they should be used, dictionaries have moved toward defining words as people actually use them.
It took time, but eventually Merriam-Webster took note of how inflation's meaning had shifted and changed the definition. "I'm gratified that our definition does more or less reflect the currently understanding of the world." said Merriam-Webster editor at large Peter Sokolowski.
Ricardo Reis, an economist at Columbia University, reckons that Merriam-Webster didn't go far enough. He concurs with that premise that inflation - that is, a continuing rise in prices - is usually attributable to an increase in money and credit relative to available goods and services. But he doesn't see why it's part of the definition.
"It's not that 99% of economists don't agree with that," he said. "But I don't see why in defining something you have to take a stand on what causes it."
By Justin Lahart