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## Abstract

Ludwig von Mises’s contributions to monetary theory reshaped the economic landscape of the 20th century. One particularly illuminating evolution in his thought is the shift in his definition of inflation. In *The Theory of Money and Credit* (1912), Mises described inflation as an increase in the supply of money **not offset by a corresponding increase in the demand for money**. However, by the time of *Human Action* (1949), this conditional clause was conspicuously absent. Mises's later framework emphasized the **non-neutrality of money** and asserted that **any quantity of money is sufficient** for the purposes of economic calculation. This essay traces the intellectual path of this definitional transition and evaluates its implications for Austrian monetary theory, with particular attention to Murray Rothbard’s intensification of Mises’s later stance.

## Introduction

Few economic concepts have been as persistently misunderstood—or as politically weaponized—as *inflation*. At the heart of this confusion lies a semantic and theoretical struggle that Ludwig von Mises confronted head-on. From his 1912 definition rooted in monetary disequilibrium, to his 1949 assertion that **any expansion of the money supply** constitutes inflation regardless of demand, Mises transitioned from a relatively nuanced formulation to an uncompromising and universalist stance.

This definitional journey is not merely semantic—it reflects a deeper praxeological development in Mises’s work, a rejection of the neutrality of money, and a recognition of its role in distorting real economic structures.

## Inflation in *The Theory of Money and Credit* (1912)

In his groundbreaking treatise *The Theory of Money and Credit*, Mises provided a careful, conditional definition of inflation:

> "Inflation is an increase in the quantity of money **not offset by a corresponding increase in the demand for money**."
> — *The Theory of Money and Credit*, 1912

This definition aligned with the broader monetary orthodoxy of his time, recognizing that an increased money supply could be neutral **if** it matched increased demand. It was essentially an **equilibrium-focused** view, implying that inflation was a deviation from monetary balance.

Importantly, this conception made room for *non-inflationary money growth*—something Mises would later repudiate. The idea was conceptually consistent with classical ideas of the price level, stable purchasing power, and monetary demand dynamics.

## The Shift in *Human Action* (1949): Inflation as Policy, Not Pathology

By the time Mises published *Human Action*, this careful conditionality had vanished. In Part 4, Chapter XVII, he wrote:

> “The notions of inflation and deflation are not praxeological concepts... They implied the popular fallacy that there is such a thing as neutral money or money of stable purchasing power... Purchasing power never remains unchanged and consequently there is always either inflation or deflation.”
> — *Human Action*, XVII.6

Here, Mises makes several critical moves:

* He **removes the equilibrium condition**.
* He **rejects neutrality of money**, insisting on the inevitable consequences of monetary changes.
* He **denounces price stability as an illusion**.
* He emphasizes that inflation and deflation are useful **only in political and historical discourse**, not in praxeological analysis.

He further warns against the "semantic revolution" that redefined inflation as "price increases" instead of monetary expansion:

> “There is no longer any term available to signify what inflation used to signify. It is impossible to fight a policy which you cannot name.”
> — *Human Action*, XVII.6

This statement reveals Mises’s deeper concern: not only had public discourse obfuscated the **cause** of inflation, but economic analysis itself was being corrupted.

## Theoretical Foundation for the Shift

The shift from a conditional to an **absolute definition of inflation** corresponds with Mises's increasing emphasis on:

#### Non-Neutrality of Money

By the 1940s, Mises’s praxeological approach had crystallized. He asserted that:

> “Every change in the money relation alters... the whole configuration of the market.”
> — *Human Action*, XV.4

The idea that money is **never neutral** implies that *every expansion* alters the real economy. Thus, whether or not prices rise immediately or proportionally is irrelevant; the monetary disturbance **has already occurred**.

#### Sufficiency of Money

Mises insisted:

> “The services which money renders can be neither improved nor repaired by changing the supply of money. **Any quantity of money is sufficient**.”
> — *Human Action*, XVII.3

This radical proposition eliminates the rationale for adjusting the money supply to meet supposed macroeconomic "needs." If all that is required for exchange and calculation is **some** quantity of money, then increasing it—even with demand—produces distortion.

## Post-*Human Action*: 1951 and Beyond

Mises remained consistent in this new definition. In a 1951 address at the Conference on the Economics of Mobilization, he warned:

> “Inflation... means increasing the quantity of money and bank notes in circulation... But people today use the term ‘inflation’ to refer to... the tendency of all prices and wage rates to rise... The result... is that there is no term left to signify the cause... you cannot fight it.”
> — *Economic Freedom and Interventionism*, Ch. 20, 1951

Mises understood that the fight against inflation must begin with precise language. The definitional confusion, he argued, leads not just to misunderstanding, but to active **policy malpractice**, such as price controls, subsidies, and further inflation.

## Rothbard’s Continuation and Clarification

Murray Rothbard, Mises’s foremost American disciple, took this definitional absolutism even further. In *Man, Economy, and State* (1962), Rothbard wrote:

> “Inflation is any increase in the supply of money not consisting of an increase in the stock of the money metal.”
> — *Man, Economy, and State*, Ch. 11

This radicalizes Mises’s post-1940 stance. For Rothbard, **any** creation of fiat or bank credit is inflation, regardless of demand, velocity, or price changes. He viewed even so-called "price-stable" expansions as inherently disruptive and unjust.

Rothbard frequently emphasized the political dimension of the semantic shift:

> “The government has redefined ‘inflation’ from the process of creating money to its inevitable consequence—price increases—thereby shifting blame away from itself and onto the market.”
> — *What Has Government Done to Our Money?* (1963)

Thus, Rothbard’s position is not just economic—it is **epistemological and political**.

## Implications and Conclusions

The evolution of Mises’s definition of inflation mirrors the deepening of his economic theory and methodological rigor. His early conditionality in *The Theory of Money and Credit* reflects a classical equilibrium framework. But as Mises developed praxeology as a distinct science, his view of inflation matured into a clear and absolute definition grounded in **causal realism** and the **non-neutrality of money**.

By defining inflation as **monetary expansion per se**, and divorcing it from price effects or demand, Mises—and Rothbard after him—equipped economists and policymakers with a sharper analytical tool, albeit one less politically convenient.

This definitional shift has practical importance: it suggests that effective monetary policy must begin by **avoiding inflation itself**, not just its symptoms. In a world plagued by central bank activism, debt monetization, and semantic manipulation, the Misesian definition remains as radical—and necessary—as ever.

## References

* Mises, Ludwig von. *The Theory of Money and Credit*. 1912. Translated by H. E. Batson. Liberty Fund, 1980.
* Mises, Ludwig von. *Human Action: A Treatise on Economics*. 1949. Ludwig von Mises Institute, 1998.
* Mises, Ludwig von. *Economic Freedom and Interventionism*. Edited by Bettina Bien Greaves. 1990.
* Rothbard, Murray N. *Man, Economy, and State*. 1962. Ludwig von Mises Institute, 2004.
* Rothbard, Murray N. *What Has Government Done to Our Money?* 1963.