Myths about inflation.(Correction, Please!)

ITEM: The New York Times for November 4, 2005, reported: "While the Fed chief sounded optimistic about the economy's prospects, Greenspan, who leaves early next year after 18 years, made clear that the Fed is keeping a close eye on high energy prices to make sure they don't spark broader inflation."

ITEM: The Times of London reported on October 28: "More interest rate increases will probably be needed from the Federal Reserve to head off inflationary pressures in America, the OECD [Organization for Economic Cooperation and Development] said yesterday in a report.... With little slack left in the US economy, inflation could 'continue to pick up,' particularly if energy prices keep rising."

ITEM: On ABC's Good Morning, America on October 16, reporter Geoff Morrell remarked that "soaring gas prices drove inflation to its highest monthly rate in 25 years."

CORRECTION: There are two major underlying errors at play here: first, the Fed doesn't cure inflation, it creates it; and, second, the commonly used definition of inflation is incorrect--confusing cause with effect. Higher prices are not inflation, but they may well be a result of inflation--which, properly defined, is an increase in the supply of money and credit.

The confusion, though widespread, is happily propagated by the government and those who benefit from cheapened money. The late Ludwig von Mises, the renowned scholar identified with the Austrian School of economics, often observed that the government is content to blame inflation on business, as has been the case most recently when prices rose in the energy sector. This is like a pickpocket yelling "catch the thief!" to disguise the fact that he actually lifted your wallet. "The government, which produced the inflation by multiplying the supply of money, incriminates the manufacturers and merchants and glories in the role of being a champion of low prices."

Economist Henry Hazlitt was on the money with his straightforward explanation: "Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore, inflation--if we misuse the term to mean the rising prices themselves--is caused solely by printing more money. For this the government's monetary policies are entirely responsible."

Just because the game is an old one doesn't make it less effective. Every single day the mass media misuse the proper meaning of inflation until the general public now believes a rise in prices (a result of inflation) is inflation itself. Mises saw it happening in 1951, saying: