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How the Austrian School of Economics Defines Inflation

Article by J. Kevin Meaders, Magellan Planning Group, Inc.

Most of the confusion surrounding conversations about inflation is simply how it is being defined. True inflation is caused by an increase in the currency in circulation, period.

First and foremost, it is important to define how inflation works according to the Austrian school. They believe that money supply without an increase in goods and services will cause prices to go up. But there is a difference between rising prices due to supply and demand and the falling value of a currency due to inflation, which is really a devaluation of the currency simply because more units of the currency are in circulation.

This means that some people will find new wealth but at the expense of others.

Consider how the government influences the economy by inserting more money into circulation. The items they purchase – whether they are food goods or something else entirely – will rise in price before anything else. This leaves many people spending more on some items without always earning more to keep up with inflationary costs. 

Read full article: How does the Austrian school of economics define inflation?

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