Josh is one of the most thoughtful legacy/academic/fiat(?) economists who nevertheless spends a serious amount of effort writing and thinking about bitcoin. #726878
On Economic Forces, the Substack he co-writes with Brian Albrecht, he usually applies a price theory lens on the macro problems of the day. In the last few years, those problems have been mostly inflation. (Highly recommend his Aug 2024 piece "I'm Teaching a Course on Bitcoin. Why?"). As he says, "Good macroeconomic analysis requires price theoretical foundations."
This week, he's thinking about the nature of inflation. ("What Is Inflation? Setting the frame with first principles")
Most Bitcoiners (and Austrian economists, etc) intuitively go to money supply, often to the point of considering inflation = expansion of money supply.
But they don't think too clearly about which money supply, and whether broad or base money is the focus of analysis.
Josh keeps the modern fiat definition of "sustained increase in the general level of prices." In this piece he draws a lot on the word "sustained."
Reminder (e.g., here: #736107):
In the modern world, only the Federal Reserve has the ability to create dollars. Banks can only create claims to dollars. Thus, the dollar remains the unit of account, but the medium of account is the monetary base.
When we look at current CPI released, and focus on one this or that line item "driving" the inflation result, we're missing the point:
The issue here is that commentary like this is focusing on accounting and, in that sense, the price of cars went up more than the other components. Nevertheless, it is not the increase in car prices that is causing inflation. In fact, if the price of cars is increasing faster than average, that is indicative of a relative price change.
Consider a gold standard. Under a gold standard, the term “dollar” is defined to be a particular quantity of gold. For example, the dollar might be defined as one-twentieth of an ounce of gold, 9/10 fine. In this case, the dollar is the unit of account, but gold is the medium of account. As a result, the purchasing power of the dollar is determined by the supply and demand for gold.
This goes a long way to illustrate the answer to my provocative/silly question: what tha hell is a dollar?!
Josh implores us to look at money through a supply and demand analysis, not of "money" broadly speaking but of base money itself. Broader versions of money are merely multipliers, essentially debt-claims to that money akin to what takes place on commodity standards.
Here's the relevant segment:
Anyway, always be reading Josh Hendrickson.