Since “Surprise 16” when Donald Trump won the presidential election, he has made it clear that if he has his way, he will enact inflationary policies. These include increasing defense spending and infrastructure spending, while at the same time reducing government revenue via decreased income and corporate tax rates.

To achieve this objective, money must be created, which could be referred to as “helicopter money.” This is a more direct way of increasing the money supply, using fiscal policy as opposed to monetary policy.

Over the last 7-8 years, inflation has been quite substantial, yet by the public’s awareness of inflation, it has been mild to nonexistent. This hasn’t gone totally unnoticed, for if you ask the average American at what rate their cost of living has been increasing, most would reply, by at least 4% but likely 5% or higher, regardless of what the heavily-doctored CPI says. We can also look at asset prices over this time period, most notably the major stock market indices and real estate, the former having increased very substantially since the peak bubble levels in early 2008 (the Dow is up roughly 45-50%). Inflation, as defined using the modern-day definition can’t actually be measured, as it’s not possible to apply accurate weights to every good and service in the economy.

The modern-day definition of inflation is an “increase in the price of goods and services”, whereas the classical definition of inflation is an “increase in the supply of money and credit.” Rising prices, both producer and consumer are the effects of increases in the money supply- not the definition of inflation itself.

The classical definition is more appropriate to use in this discussion (and really at all times) because in the causal relationship between an increasing money stock and prices (consumer and producer), the money stock is far more important. The classical definition has been met (as discussed below), however one ingredient has been missing in this equation post-2008-the velocity of money, also known as turnover. When the velocity of money is low or decreasing, it is representative of economic stagnation or contraction, whereas a high or increasing velocity is synonymous with a robust and expanding economy.