Monetary inflation

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    Below is the definition of inflation from Professor Murphy’s book:

    “An increase in the quantity of money (in the broader sense of the term) that is not offset by a corresponding increase in the demand for money (in the broader sense of the term), with the necessary result being a fall in the purchasing power of money”

    Excerpt From: Robert P. Murphy. “Study Guide to the Theory of Money and Credit.” Ludwig von Mises Institute, 2011. iBooks.
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    I don’t understand the phrase “corresponding increase in the demand for money”.
    If one was on a gold standard and someone mined more gold would that be monetary inflation?


    Money proper on the unhampered market economy, according to Mises, is a commodity, e.g., gold. The production of all goods in the market economy, including gold coins, is regulated by profit and loss. Each line of production of the various goods expands until no additional profit can be earned by further production. In the market economy, therefore, the only justification for an expansion of production of any good is if demand for it increases. Then, revenues will exceed costs for some expanded production. No entrepreneur expands production of a good if demand has not risen. If he did so, he would suffer losses. Gold miners don’t spontaneously start producing more gold. If they did the would suffer losses on such production. If demand has not increased, they would have to lower the price of gold to sell the added supply and their costs of production for the additional supply would rise (or at least, not fall). If Apple, Inc. increased production of the iPhone 7 by 20%, they could sell the larger supply only at a lower price. To ramp up production by 20%, they might have to pay overtime to labor or premiums to suppliers, etc.

    Mises, then, is just applying this general principle, that production of a good is regulated by profit and loss, to money itself.


    Thank you

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