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The quantity theory of money shows that the cause of generally rising prices is an increase in the quantity of money. More specifically, it shows that the cause is an increase in the quantity of money at a rate more rapid than the increase in the supply of gold and silver. The increase in the supply of gold and silver, being itself a by-product of the general increase in the ability to produce, would show no tendency regularly or significantly to outstrip the increase in the supply of the mass of ordinary commodities, and to that extent would be incapable of causing a sustained significant rise in prices. In addition, since government intervention into the monetary system is what has been responsible for the quantity of money being able to increase more rapidly than the increase in the supply of gold and silver, the quantity theory of money implies that what is responsible for the problem of a persistent significant rise in prices is an increase in the quantity of money caused by the government.

Indeed, the quantity theory of money implies that inflation should be defined in terms of the increase in the quantity of money - specifically, as an increase in the quantity of money at a rate more rapid than the increase in the supply of gold and silver or, equivalently, as an increase in the quantity of money caused by the government. Such a definition states the essential cause of the cluster of symptoms which people identify with inflation and which must be acted upon to eliminate those symptoms. It represents a definition in terms of fundamentals and provides, at the same time, a sound guide to corrective action. Nevertheless, the great majority of people today, including even the great majority of professional economists, define inflation in terms of one of its leading symptoms. They define it merely as rising prices.

The definition of inflation as rising prices says absolutely nothing about any specific cause of rising prices. It implies, therefore, that inflation can be caused by anything that raises prices. Having accepted this definition, it is no wonder that people are confused about inflation. There are a vast number of things that might raise prices in one circumstance or another, ranging all the way from bad weather causing poor crops and thus higher farm-product prices to the development of a fad for some novelty. On the basis of the definition of inflation as rising prices, people are led to consider every possible cause of higher prices as a possible cause of inflation, and thus to believe that the cause of inflation can vary from case to case. . .

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