An article in last week’s Yahoo! Finance, “Inflation slowed in January as consumer prices rise 2.4% over prior year to start 2026,” noted the rate of inflation had, well, slowed in January. Of course, there is the small issue that there are at least two different kinds of inflation, cost-push and demand-pull.
Cost-push is often non-controllable, as it means a thing becomes less available (if we said “scarce” we’d open a whole new can of worms) in economic terms, so as the supply goes down, the price goes up as people bid up the price to get what they want of a diminishing supply. Demand-pull is often controllable, as it means a thing becomes more “demanded” and so people bid up the price to get more of it, or there is more of the medium of exchange available and people bid up the prices of things because they have more to spend; prices go up for the same amount of stuff.
Confusing matters, sometimes these two types of inflation are mixed, but as a general rule, demand-pull is the one people focus on because it is the most common as the result of backing currency with government debt instead of private sector hard assets (and also being trapped in the wrong economic and monetary paradigm, which we won’t get into right now).
Then there is the added problem that different people and schools of economics tend to define inflation differently, and sometimes even confuse definitions so that nobody really knows what anyone else is talking about. For example, here are the definitions of inflation the three mainstream schools of economics use . . . not one of which is the definition used by policymakers in their purest form!
· Monetarist/Chicago School: Inflation consists of more money “chasing” relatively fewer goods and services, causing a rise in the price level. (This is the definition we use in the Just Third Way of Economic Personalism.)
· Austrian School: Inflation consists of any increase in the money supply, regardless of whether the price level goes up, down, or stays the same.
· Keynesian School: Inflation consists of a rise in the price level after reaching full employment. Rises in the price level prior to full employment are the result of “other factors.”
Given that inflation means “a rise in the price level,” we obviously have problems with the Austrian and Keynesian Schools . . . but the Austrian School at least makes sense: it assumes that what is being inflated is the money supply, not the price level. We disagree, but we can understand the Austrian definition. The Keynesian? Well . . .
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| How do you define inflation? |
Where the Monetarists say inflation means a rise in the price level, and the Austrians say inflation means an increase in the money supply, the Keynesians — pure Keynesians, anyway, of whom we know none — insist inflation means a rise in the price level except when it doesn’t. Adding the qualifier “after reaching full employment” renders the Keynesian definition of inflation essentially meaningless.
You see, Keynes defined “full employment” as Keynes defined full employment not as no unemployment . . . but as the point where involuntary unemployment is eliminated and further increases in aggregate demand result in price inflation rather than increased output. It is the level of employment where aggregate demand is sufficient to utilize all available resources, essentially representing the maximum, sustainable, potential output of an economy.
In other words, Keynes used a term to define itself, making it completely useless:
· Inflation is a rise in the price level after reaching full employment, and
· Full employment the point at which the price level starts to rise, and involuntary unemployment no longer exists.
So, how do you know you have full employment? You have inflation. How do you know you have inflation? You have full employment!
In other words, you just defined a thing in terms of itself. It’s like saying a yard is three feet. And what’s a foot? One third of a yard, of course!
Anyway, getting back to the Yahoo! Finance article, it reported,
Friday’s data represented broad progress from December’s reading. The inflation print also offered this week's second better-than-expected reading on the state of the economy. Wednesday’s jobs report showed the unemployment rate ticked down at the start of the year, while payrolls grew by twice what economists had expected.
That sounds very nice . . . but it assumes that a low rate of inflation is better than a high rate of inflation (we agree), but also the paradox which presumes inflation is itself good if kept in bounds — and we emphatically disagree . . . even if we agreed with whatever definition of inflation is being used which we can’t figure out anyway.
Frankly, prices might not be going up as fast as they were before, but they are still going up, and wages are stagnating. As a thumbnail report generated by AI noted, “Real wages for most U.S. workers have largely stagnated since the 1970s when adjusted for inflation, even as productivity has significantly increased. While top earners have seen substantial gains, median wages have barely moved for decades, with many workers experiencing pay that fails to keep pace with the rising cost of living.”
In other words, the inflation the experts think they need to finance new capital formation to provide jobs is outstripping the income generated by those jobs. This is a trade-off which is no longer working if it ever did. In our opinion, it has never worked because it is not how the system really works.
What is the answer? As we have mentioned many times on this blog, adopt the Economic Democracy Act (EDA). The monetary policies of the EDA are non-inflationary and could even (and probably will) lead to an appreciation of the currency: an increase in the value of the currency and a consequent lowering of the price level.
A stable or appreciating currency is good unless someone is a significant debtor. Unfortunately, as the media have made painfully evident, the amount of consumer debt is at an all-time high. As another AI report noted, “Total household debt hit $18.8 trillion in Q4 2025, with total credit card debt reaching $1.277 trillion. Elevated inflation and high interest rates have driven these record balances, with many consumers struggling with rising delinquencies, particularly among younger borrowers.”
What to do? Why not peg all debt as of the adoption of the EDA to the value of the dollar (or other currency) as of the date of the debt?
In the early 18th century John Law pegged the value of the notes issued by his bank to the value of the currency at the time the notes were issued . . . meaning a note that would (for example) purchase a hundred loaves of bread when it was issued, would still purchase a hundred loaves of bread even after the value of the currency was cut in half and the price of bread doubled.
Thus, if debts above a certain amount were pegged to the value of the currency as of the date the debt was incurred, the debtor would pay the value of the debt in full even if the nominal amount of the debt was much less. For example, if a debtor incurred a debt of $100 when bread was $1 a loaf and went to pay it when bread was $0.50 a loaf, he, she, or it would pay $50 . . . but would still be repaying the full real value of what was borrowed.
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