Monetary inflation
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[edit] Monetary Inflation
Monetary inflation is the term used by economists of the monetarist, neoclassical or austrian school of economics to differentiate the primary or direct inflation in the money supply from price inflation which they view as a result or symptom of the former. Originally "inflation" was used to refer to monetary inflation, whereas in present usage it commonly refers to price inflation.
The description of the actual mechanism varies according to each school, but there is overall agreement among them that there is a cause and effect relationship between supply and demand of money and prices of goods and services measured in monetary terms. Although the system is complex and there is a great deal of argument on how to measure the monetary base or how much factors like the velocity of money affect the relationship, and even more disagreement on what is the best monetary policy, there is a general consensus on the importance and responsability of central banks and monetary authorities in affecting inflation. Inflation targeting is advised by followers of the monetarist school, while austrian economics often calls for an end to fractional reserve banking and a return to some kind of gold standard.
