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Thanks for the post, Nick. I can't read it right now, but I will savor the thought of when I can...

Just to clarify, I guess my post *did* imply that you and Scott were being Orwellian, but that wasn't my intent. Rather, in my previous post on this issue (i.e. the attempt by some Austrians to document the historical change in definition), some libertarian types were accusing me of believing in "central planning" of language etc. So I wanted to remind them of the classic Orwell essay, to show that what I was saying was totally consistent with stuff that libertarian types generally endorse.

A change in the price level could occur because of changes in :
- Money Velocity
- The money supply

Movements in these variables can push the price level in different directions with the overall change in the price level reflecting the net effect.

I think Austrians are particularly interested in the scenario where RGDP increases (downward pressure on price) combined with money supply increases (upward pressure). If these 2 cancel each other out then you can get no price level changes. However Austrians think this can be dangerous. Because price are stabile people don't notice the increased money supply and this can causes interest rates to be lower than they otherwise would be with the kind of distortions described in ABCT. They think this happened in the 1920's and (under inflation targeting) during the 2000's.

I think that if pushed most (sensible) Austrians would define inflation/deflation as "changes in M not in response to changes in V" rather than just changes in M, and given their interest in inter-temporal distortions there is some logic in this definition.

"'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.'
'The question is,' said Alice, 'whether you can make words mean so many different things.'
'The question is,' said Humpty Dumpty, 'which is to be master — that's all.'
Alice was too much puzzled to say anything; so after a minute Humpty Dumpty began again. 'They've a temper, some of them — particularly verbs: they're the proudest — adjectives you can do anything with, but not verbs — however, I can manage the whole lot of them! Impenetrability! That's what I say!'

For these kinds of language discussions, I think its very useful to keep in mind the statistical perspective on language (http://lesswrong.com/lw/od/37_ways_that_words_can_be_wrong/). It helps me avoid a lot of unnecessary confusion.

In particular, I think it would be useful to think about the connotations associated with the word 'inflation' (http://lesswrong.com/lw/ny/sneaking_in_connotations/).


"And NGDP targeting isn't just a way of slipping in a policy of increasing CPI inflation without anyone noticing."

First, the central bank does not have the requisite tools to hit any goods related target. The central bank does not produce, consume, buy, or sell goods. Second, nominal GDP futures (or nominal GDP output gap futures) would presumably be a fiscal (not monetary) policy tool.

Finally, what it is the central bank's reaction function if nominal growth overshoots it's target? Does it make a difference to the central bank if nominal GDP overshoots because of higher real growth or inflation? Should the central bank try to constrain both?

Libertarians shouldn't endorse Orwell on language. He was wrong (and a socialist, not that the two are necessarily related).

Don't know if this is helpful, but a Google search on the "Austrian definition of inflation" led me to this. As early as 1909, Mises wrote that inflation is "an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur." As pointed out by Per Bylund in the linked entry, "Austrians commonly refer to only the first part of this definition – the increase in the quantity of money – without the specifying statement that inflation is only that part which is not offset by an increased demand for money." The fall in the objective exchange-value part of the definition seems to correspond to how inflation would commonly be defined now.

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