This book describes the most influential concepts of traditional and recent theories of inflation. In the discussions of the various models, the reader will probably notice that the concept of inflation is used without further explanation. The problems associated with inflation do not begin with the explanation of it, however; they start with the attempt to define it. In fact, there is no generally acceptable or satisfactory definition. In the literature, a pragmatic definition has the widest acceptance. Although it lacks precision, the following definition has an advantage in that it corresponds to common usage: “Inflation is a process of continuously rising prices, or equivalently, of continuously falling value of money” (Laidler and Parkin, 1975, p. 741). It refers to the symptoms of inflation but tells nothing about the causes and effects of inflation.

Some comments may make the definition of inflation more precise.

1. a. The definition states what inflation is not; that is, it is not a one-time or short-run increase in the general price level. Similarly, one cannot label as inflation price increases during the recovery phase of the business cycle that are rescinded through price reductions during the recession. Only when price increases are irreversible can one speak of inflation without qualification.

2. b. One must emphasize that inflation does not concern increases in the prices of individual commodities; it refers to an increase in the general price level, the weighted average of all prices.

3. c. One should hesitate to label as inflation increases in the general price level at a rate of less than 1 percent per year. The rate of increase in the general price level that merits the title “inflation” depends on the sensitivity of economic agents to inflation. This is necessarily a subjective criterion.