(I wrote this in September 2009, at the height of the Great Financial Crisis. With all the renewed interest in inflation, I figured it's good to repost.)
"Has it ever occurred to you, Winston, that by the year 2050, at the very latest, not a single human being will be alive who could understand such a conversation as we are having now?...The whole climate of thought will be different. In fact, there will be no thought, as we understand it now. Orthodoxy means not thinking--not needing to think. Orthodoxy is unconsciousness."
In 1984, George Orwell introduced "Newspeak", a language being gradually adopted by citizens of a fictional country called Oceania. As Orwell notes, the intention was that once Newspeak had been fully adopted, 'a heretical thought should be literally unthinkable, at least so far as thought is dependent on words. This was done through the invention of new words and, more importantly, by "eliminating undesirable words and by stripping such words as remained of unorthodox meanings."
Words, of course, don't change their meaning by coincidence. As Orwell points out in his 1946 essay Politics and the English Language, the "decline of a language must ultimately have a political and economic cause". Of course, if we think foolish thoughts, our language would become full of foolish words, but the effect becomes a cause and the new language encourages more foolish thoughts. But what exactly does it mean that the decline of language has political and economic causes? Well, since the civilized world happens to be in the middle of a severe ideological crisis, we can use a contemporary example to show how this process works.
Let's look at the word Inflation. According to the Oxford English Dictionary, Inflation was first used in the context of economics in 1838 by one D.D. Bernard spoke about the "inflation of the currency". In 1864, it was used by Noah Webster — author of Webster's English Dictionary — to describe "Undue expansion or increase, from over-issue [of currency]". In 1949, The Times newspaper wrote that "Inflation is used to describe the situation in any country where there is an excess of currency and credit in relation to the work to be done".
As you can see, the word was originally used to describe an increase in the supply of money. Such an increase often results in a general increase in prices. However, one is the possible cause of the other, and the two are definitely not one and the same.
Today, the Oxford English Dictionary, defines inflation, in the context of economics, as follows:
"Great or undue expansion or enlargement; increase beyond proper limits; esp. of prices, the issue of paper money, etc. spec. An undue increase in the quantity of money in relation to the goods available for purchase; (in lay use) an inordinate rise in prices."
While the dictionary sticks to the original definition of inflation as an undue increase in the quantity of money, it also notes that, "in lay use," it now means 'an inordinate rise in price'.
And so, inflation is no longer seen as an increase in the amount of money that might lead to an increase in the general price of goods; it is simply seen as an increase in the general price of goods. But, if inflation is an increase in the general price of goods, what causes this increase? It seems that nobody knows anymore. In the past, there was a word to describe the cause for it; today, we only have a word to describe the result.
This confusion of cause and effect may have originated with the general public, but today, it is common in all major economic publications. Most contemporary economists use the word inflation to describe a general increase in the price of goods. Only a small group — mostly Libertarian or so-called Austrian economists — still use the word in its original meaning.
As Orwell pointed out, the decline of a language, a deflation of meaning, has "political and economic causes", which are in turn sustained and reinforced by the continued decline of language. The word inflation is a case in point. The amount of money in the economy is controlled by the Government and the Federal Reserve and its member (in the US). The government uses inflation as a hidden tax in order to finance political giveaways and military adventures.
It is always easier to create new money instead of trying to raise taxes directly. Either way, the public pays for it. When the government creates new money, the value of the public's savings is diminished, and they usually need to spend more of it in order to purchase the same amount of goods. Prices go up. If we differentiate between inflation and rising prices, it reminds us that government is the cause and that rising prices are the effect.
If we use the word inflation to describe rising prices we forget about the cause. By doing so, we treat rising prices as a God-given curse, and sometimes even turn to politicians to protect us against it. When that happens, the politicians usually blame the rise in prices on "greedy businessmen and irresponsible consumers" and increase the supply of money even more, which means additional price hikes and less value for your money.
Keep this in mind next time you hear a politician speak about inflation. Mixing causes and effects is a bad habit. The good news is that this process is reversible, but only if one is willing to take the necessary trouble. And so, says Orwell, "If one gets rid of these habits one can think more clearly, and to think clearly is a necessary first step toward political regeneration".