There's an old definition—older than the Federal Reserve, and older than your grandparents—of the word "inflation" that used to mean something very different from what it means today.
It meant that the money supply got bigger and, as a result, lost some of its purchasing power.
That's it.
Rising prices weren’t inflation; they were what inflation did to you.
Somewhere along the line (and definitely by accident), that got flipped. Now "inflation" means the cost of things, and the cause—the printing—is nowhere to be found in the conversation.
Convenient, if you happen to be the one running the press, amiright?
Of course, if "inflation" just means "how much did prices go up," then we have to be able to identify which prices, and then we have to agree on how we will measure them.
There is a ton of room for creative accounting here. For example:
The M2 money supply (the actual money supply) is up 4.7% over the past year. CPI, which measures how much more it costs this year to buy roughly what you bought last year (according to the government's basket and the government's math), sits at 3.8%. Core PCE strips out food and energy (you know, the two things you pay for every single week) and gets it down to 3.3%. Trimmed Mean goes further and tosses out whatever moved the most, which lately means gasoline (up around 28%) and beef (up around 15%), and lands at a downright pleasant 2.3%.
It’s easy to see how headlines can change based simply on which measuring stick we’re using to report inflation numbers.
Now we have a new man holding the ruler. Kevin Warsh was sworn in as the new Fed Chair back in May. He's said that he thinks there's room to cut interest rates.
The White House would very much like him to cut interest rates.
There's just one catch with cutting rates: you're supposed to do that when inflation is low.
So watch closely over the next few months. If Chairman Warsh steps up to a microphone and announces that inflation has finally been licked, it’s pretty important that you ask which number he’s choosing to measure.
One of the good things that came out of Covid is a population that is less willing to “trust the experts” than they once were.
This has led to a breakout of independent researchers and journalists who are doing some truly excellent work.
For example, a fellow named Tom Elliott got fed up enough with the official inflation measuring systems that he built his own. He calls it the Reality Index, and it uses the very same household spending weights the government uses for CPI, but plugs in the actual retail prices families pay instead of the government's "quality-adjusted" math.
By his count, a basket of goods that cost $100 in the year 2000 costs about $246 today. The official CPI says $187. Even The Wall Street Journal took notice.
Of course, the professional economists are already fighting over his methodology, but the important part is this: ordinary Americans are so done trusting the official standards of measurement that they've started building their own.
The problem, of course, is that even guys like Elliott are still measuring prices. The symptom of inflation, not the cause. If you want to watch the disease itself, you need a different kind of number altogether—and as it happens, two economists built one decades ago.
Murray Rothbard and Joseph Salerno called it the True Money Supply, and it cannot be spun the way a price index can.
The idea is almost insultingly simple: stop pricing a shopping cart and just count the dollars.
They capitalized on the truth that you can't trim a headcount. There's no "core" version where you quietly remove the dollars that grew too fast. It's just… counting. And counting is a lot harder to fudge than a general "feeling" about whether eggs or beef or fuel got more expensive.
So what does the honest ruler say?
Since 2009, the True Money Supply has increased by more than 206%.
That looks a lot worse than 2.3%, huh?
This is the thing I want my own kids to understand before they're old enough to vote—before some confident person in a good suit tells them the economy is "under control," or "recovering."
Numbers don't just fall out of the sky. Somebody chooses them. And tricky math has given politicians just as many options to choose from as there are reasons not to trust the government.
Teach a kid to ask, "By which ruler are you measuring?" and you've robbed the narrative-manipulators of their greatest power.
That's exactly why we wrote The Tuttle Twins and the Creature from Jekyll Island. It takes the single most boring, deliberately-confusing subject in American life—how money gets made and who gets to make it—and turns it into an exciting story that a nine-year-old will actually finish.
Of course, the book is just the conversation-opener.
You're the one who's going to be at the dinner table when your kid asks why we even need money and why everything can’t just be free, or why everyone keeps talking about how expensive everything is now.
You’re the one who will say, "Good question—who do you think decides those things?"
All we’re here for is to give you the resources to supplement the important conversations you’re already having with your kids.
I guess we can thank the government for giving us endless fodder for the conversations we’re having.
— Connor
