Friedrich August von Hayek’s “Measuring Inflation” is a letter to the editor of The Times, published on August 2, 1978, and presented here in a 2022 annotated reprint. Its subject is the distinction between inflation’s rate and the rate at which that rate increases. Hayek uses this distinction to question whether a political claim of improvement actually establishes economic improvement.
But sometimes one wonders whether they are not deceiving themselves by using language which they do not understand.
The opening shifts the charge from deliberate deception to possible conceptual confusion. Hayek then scrutinizes the Prime Minister’s parliamentary claim that inflation was increasing at half its previous rate. The editorial note identifies the speaker as James Callaghan and confirms that Hayek supplied the italics emphasizing “increasing.”
Hayek’s hypothetical example exposes the ambiguity. Inflation rising from 1 to 2 per cent annually represents a 100 per cent increase in its rate; inflation rising from 10 to 18 per cent represents an increase of “only” 80 per cent. The smaller proportional increase nevertheless accompanies much higher inflation.
Such a claim would of course be entirely compatible with the rate of inflation having increased all the time!
The letter moves from suspicion about political language to a numerical counterexample and this concluding warning. Hayek does not establish the actual course of inflation: he shows why the wording alone cannot substantiate success. Its relevance lies in distinguishing a slowing increase from a falling rate, and in demanding that claims of economic progress identify precisely what is being measured.
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