Inflation is becoming an increasingly common topic to complain about.  It costs more to transport ourselves to jobs that we cannot afford to stop dragging ourselves into (well- most of us).  Most people have this sinking feeling that we are getting screwed, but it is difficult to articulate what the offending etiology is.  Inflation is a massive problem, and in my opinion is the primary cause of normalized debt slavery.

Money printing is going parabolic and fueling wealth inequality via the Cantillon Effect.  Technology is making jobs increasingly irrelevant, and wages are stagnant.  Life is oppressive and complicated.  If we are going to win the information war, it’s important that we understand problems associated with utilizing purchasing power to define inflation.  

Is inflation really the government-promoted Consumer Price Index (CPI) rate of purchasing power decay in an ever-changing basket of goods?

Somehow, we have allowed the definition of inflation to become coopted to mean a reduction in purchasing power, rather than a simple calculation for the increase in money supply.

When we look at inflation in the Keynesian textbook context of declining purchasing power over time, it’s confusing.  Even some of the most respected bitcoiners seem to get stumped when trying to describe inflation.  

Conversely, bitcoin’s “inflation rate” is well known.  We can describe how the money supply expands to reach 21 million with simple math.

I can’t argue with this quote, but humor me here.  We might say there is an asymptotic decrease in inflation rate over time.  We might say 6.25 new units are minted every 10 minutes compared to 21 million.  The S2F model of a commodity describes changes in inflation rates.  All these ways of describing bitcoin’s inflation rate focus on the production of bitcoin relative to the overall supply.  They describe the inflation of the thing.

On the other hand, people almost always describe fiat inflation differently.  With fiat, people tend to default to loss of purchasing power rather than the expansion of the money supply.  Why do most people, even bitcoiners, tend to describe the inflation rate of fiat using a different definition than they do with bitcoin? 

Calculating percent changes in fiat purchasing power is the wrong approach. 

The problem is that the percent value is dependent on 3 variables:

1. Purchasing power decreases with increases in fiat base money supply.

2. Purchasing power increases with technological advancement which allows for increasing efficiencies in producing goods and services.  Perpetual increased technological deflation should drive prices down exponentially.  

3. Purchasing power changes depending upon whatever specific commodity’s price is being measured.  Things that become easier to produce at rates outpacing money supply expansion can become cheaper, but in most cases money supply expansion is incredibly outpacing this technological advancement. 

Therefore, the problem with defining inflation as a percent change in purchasing power is that you can’t be sure how much that value is weighted towards any one of these 3 variables.  Inflation in this context is not an independent variable.  Therefore, knowing inflation in terms of purchasing power is of limited utility.  

Parker Lewis has said that price signal is important to communicate information so we can have an efficient economy.  Inflation is used to calculate prices.  We need accurate inflation calculation to determine how to price things — such as goods or our own time.  We traditionally calculate inflation using purchasing power — of which pricing itself is a directly proportional variable.  How are we supposed to calculate price efficiently when the inflation information we use to calculate price is calculated from the price?  Purchasing power rate change and price are directly dependent upon each other.  Defining inflation with purchasing power rate change confuses essential price signal.  

Even our terminology is backwards and designed to hide theft.  Wouldn't a decline in purchasing power imply a "deflation" of purchasing power? How did a decline in purchasing power become “inflation”?  Inflation gives a false image of strengthening purchasing power.  

What if we have been tricked into measuring the wrong thing?  The THING being inflated is the money supply, and this should be a simple and concrete calculation.  If we simply communicated inflation rates only in terms of base monetary expansion, then the general public’s concept of inflation would be much different.  

When we view inflation in terms of purchasing power, natural exponential technological deflation of prices is allowed to hide base money inflation.

People then underestimate and fail to communicate the magnitude of base money inflation.  We then are more likely to allow those controlling the money printers to use the Cantillon Effect and skim the added value of technological deflation, without effectively communicating what is happening.  “Your soy burger bleeds pink, and it only costs a little more than the hamburgers that you are used to”.

I’m surprised that bitcoiners don’t talk more about properly defining inflation.  We complain about fiat being a poor measuring stick for value, but our own inflation measuring stick tends to be broken.  If we keep viewing inflation in terms of purchasing power, then technological deflation and changes in commodity selection will continue to affect prices, and the goal posts will keep moving back.  Defaulting to defining inflation in terms of purchasing power is a Keynesian psy-op.  We need to go back to using a simple concrete inflation value of the rate of base money supply expansion so we can communicate more effectively. 

Everybody defaulting to fiat purchasing power to measure inflation is like everybody saying “Brawndo’s got what plants crave.”  We have been programmed to do that.  Bitcoiners should be leading the charge to break this faulty programming.