Inflation - Its Societal and Economic Implications

Seminar paper from the year 2009 in the subject Economics - Economic Cycle and Growth grade: 13 University of Applied Sciences Hof language: English abstract: The understanding of the cause and effects of inflation is crucial to understanding its impacton society throughout history. Inflation was a main cause for empires to fall. By lowering themetal content of the coin or nowadays with the issuance of an ever increasing amount ofpaper currencies backed by nothing a debasement of the currency was and is a directconsequence. With the debasement of the currency people are deprived of the purchasingpower of the currency. Before we look at the ramifications of inflation a correct and distinctdefinition of the term inflation is required. The word inflation is derived from the Latininflare and means to increase or to balloon.1 In this context it relates to the increase ofmoney supply by continuing government issue of currency.Up until the 1940s the term inflation only referred to an increase in the money supply beyondthe increase in goods and services during a given period of time.2 By this definition the causeof inflation is easy to determine; namely the institution issuing the currency. From the 1940sthrough to the present day the prevailing definition of inflation significantly varies from thehistoric definition. The standard definition of inflation today adopted by economists and themainstream press is that inflation is an increase in prices. This change of the meaning of theterm inflation is by no means harmless since it paved the way towards inflationism. As wewill see later on in this study inflation has been prevailing in the industrialized countriessince World War I and has been exacerbated by the complete demonetisation of gold in 1971as President Nixon closed the Gold window.By focusing on the term inflation I will rely on the historic and the Austrian economicdefinition due to its longer period in use and its higher accur