How are money and inflation institutions?

The macro textbooks usually say that inflation comes from the supply of money. In a regime of fiat monies, central banks “compete” at providing stable money. However, some central banks’ hands are tied by their governments’ desire to use the inflation tax. If you don’t trust the local money, you can always switch to foreign exchange, gold, or even Bitcoin.

But if money is what folks accept as such, its devaluation must also come from folks collectively thinking that the central bank intends to print more.  Its rise in purchasing power can also come from holders thinking of it as a “safe” money.

Veblen once defined institutions as collective habits of thought (at p.107).  That means that to predict inflation, one must anticipate the price expectations and strategies of buyers and sellers of money. Today, cash is king, so that it makes sense to see low or even negative inflation and interest rates.

This means that the macro textbooks don’t have the full story. Inflation is also a story of institutions in the sense of Veblen.

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