A column in the Wall Street Journal implicitly reminds us of the strange theories of inflation that are lying around. Inflation seems to be conceived as the mysterious increase of some prices that must be caused by some people who selfishly demand more units of “aggregate output” (a sort of dark matter) for themselves. If these people are bad capitalists, the increase is called “greedflation”; bad workers, and we speak of “wageflation.” Strangely, this mysterious somethingflation is never called “rulerflation,” perhaps out of respect for the leaders of mankind. (See Greg Ip, “As Greedflation Starts to Fade, Wageflation Creeps In,” Wall Street Journal, July 6, 2023.)

Recently, the ridiculous idea circulated that Beyoncé’s concert in Stockholm had accelerated inflation in Sweden—“beyoncinflation,” we should call it. If some stones became more expensive, would it be useful to call the phenomenon “stoneflation”? (See “The Beyoncé Effect: Sweden’s Inflation Feels the Hit,” Wall Street Journal, June 14, 2023; “Beyoncé Blamed for Stubbornly High Swedish Inflation,” Financial Times, June 14, 2023.)

Without claiming any originality, I propose another way to look at inflation. Its advantage is to have its roots in the economic way of looking at things, to be consistent with the analytical tools of economics—even if the ultimate theory of inflation one may build on that foundation may be more complex.

Suppose a constant stock of money, whether it is made of gold or any sort of paper or anything that people generally consider to be a convenient medium of exchange. Now, some selfish individuals think they will improve their individual welfare by consuming more of good or service B. (You may think “B like in Beyoncé show,” but it can be any other produced good or service.) They must of course consume less of some good A. The reason is that resources are scarce. To produce more B, the economy must produce less A (along its production possibility frontier or PPF). Being bid up, the relative price of B increases, which is the same as saying that the relative price of A decreases. Alternatively, we can say that, on the PPF, the opportunity cost of B increases and the opportunity cost of A decreases. Of course, the remuneration (wages or profits) of the producers of A diminishes, and the remuneration of B’s producers increases. Nobody can speak of inflation. There seems to be no badflation! Why?

I suggest that we can’t rationally think about inflation without first answering this question.