Inflation and Language

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Thought provoking piece (takes a while to download, source page is here) by Dylan Grice on the influence of inflation on language. Grice posits that because inflation involves the devaluation of money, and because money is based on trust, devaluing money devalues trust. It also devalues language.

Using Google ngram word count analysis, Grice demonstrates hyperbolic-like growth in use of arcane, hallow, and euphemistic economic and financial terms alongside the massive growth in inflationary credit money over the past three decades.

Among his interesting observations are:

Wealth vs liquidity. Blurred differences between old school tangible, productive wealth (e.g., farmland, businesses) and new age intangible, liquid wealth (e.g., financial securities). He suggests that many of today's investors confuse liquidity with wealth.

Risk vs volatility. Risk can be defined as potential for loss while volatility can be seen as variation in price. Many 'risk managers' are currently focused on managing volatility rather than risk.

Money vs capital. Grice cites a book excerpt where the author claims that "financial capital is abundant. The scarce resource is no longer money" and that at some point central banks may need to "print more capital."

As Grice observes, money is not capital. Capital comes from economic resources that have been set aside rather than consumed. Money is merely printed paper, or numbers created by computer keystrokes.

Grice astutely observes, "Capital comes from savings, and the policy of cheap credit with its inflation of time preference has encouraged spending, not saving. Scarce capital is growing even scarcer."

That observation is so important that it should be read repeatedly until completely understood.

He continues, "One day, the price of capital will reflect its underlying scarcity because one day it must."

Dylan Grice has mined a real gem, it seems to me. Inflation has not only devalued money but it has devalued language and understanding related to money. In particular, people are prone to confuse money with capital, even at the policymaker level.

When language itself becomes grossly distorted, it is likely that related behavior becomes grossly distorted as well.