Inflation vs. Zero-Sum Economics: A Question (Update: Answered!)
Can some of the more economically minded in the house explain something to me?
I was having a discussion with someone about economics in which two claims were made by the same person. The first, is that inflation is always bad, and so currency should be on some sort of standard (he preferred the gold standard). He also, at another point in the discussion, made the comment that too many people make a mistake of thinking that economics is zero-sum, quoting Milton Friedman thusly:
“Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”
This strikes me as being contradictory. Absent inflation (i.e. growth in the supply of money) then there must be a fixed pie of wealth, right? So while it’s apparent that hyper-inflation is bad (a glut of money pouring in too fast for the economy to handle), it seems to me that economic growth is absolutely predicated on some level of mild inflation.
Is that right? Or am I missing something?
Update: Thanks to the wonderful folks in the comments, I figured out what the issue was — I was hanging on to the old school definition of inflation as “increase in the money supply.” So I was trying to imagine non-zero sum economics with a finite, fixed amount of money, which just didn’t make sense to me. To those of you who refreshed me on the idea that inflation is simply a rise in general prices, which can be, but isn’t necessarily driven by increases in the money supply, thank you.