First, if “fiat money is a liability of society and a proportional claim on the future output of society”, then why must the value of these claims decrease when more claims are issued? This might sound like a silly question to you, so I’ll better elaborate. I’d agree with you if there already existed claims on the *total* future output of the society. But I don’t think this is the case. And that’s why I want to argue: The new claims that are issued are against that part of future output which wasn’t yet “claimed”. Of course we cannot in reality divide between future output which there exists claims against and future output which there doesn’t exist claims again, so this is a question to be answered at the aggregate level. Does there exist already claims against all future output of the society?

Secondly, you write: “The price of a good in money terms is a measure of the market value of that good.”. This is no doubt a difficult subject. Nevertheless, I dare to argue that what is measured “in money terms” is the price, not any value. But if you by “market value” mean “market price”, we are in agreement. You are right in that a price needs to be always viewed in relation to other prices. It doesn’t express anything absolute. The (prices of the) goods I buy might be high relative to my salary or relative to prices of identical products offered for sale by other merchants, but not high in themselves.

What do you say? I can see that you have been wrestling with subjects I’ve been wrestling with during the last couple of years, so I’m sure we can learn something from each other.

Agree that there can be a positive feedback cycle involved in the decline of fiat currencies (and resultant rise in prices). I guess a few of the questions that I am trying to address are (1) why does fiat money have value in the first place, (2) what determines that value of fiat money, and (3) what triggers a mild decline in a fiat currency such that it leads to 5-10% type inflation versus a collapse in a currency that leads to 50%+ type inflation?

After all, not all declines in currency value lead to “hyperinflation”, e.g. US in the 1970s. If it is as simple as “positive feedback loop” then why didn’t the US experience hyperinflation in 1970s?

http://howfiatdies.blogspot.com/2014/08/positive-feedback-theory-of.html
http://howfiatdies.blogspot.com/2013/09/hyperinflation-explained-in-many.html
http://howfiatdies.blogspot.com/2013/03/simulating-hyperinflation.html

Rising velocity of money doesn’t require people to rush out and spend more – this is a myth. The velocity of money rises because the value of each unit of money falls and therefore each unit of money must turn over many more times in order for the same value of transactions to be conducted. You might want to read my post on “What Determines the Velocity of Money?” published 7th April 2015.

The impact of globalisation is definitely putting pressure on the value of goods and labor: this is a clear deflationary trend. However, the price level is a relative expression of both the market value of goods/labor and the market value of money. It may be the case the market value of goods/labor continue to fall, but if the market value of money falls more then inflation will result. If the market value of money collapses, then hyperinflation will be the result even if the market of goods/labor is falling, as we can seen repeatedly in countries like Zimbabwe.

I agree that the inflation statistics are not entirely accurate.

The only places where inflation is popping up is in absolute necessities like food and rental prices. Inflation in housing and rent is largely swept under the rug as the owners equivalent isnt an accurate gauge. Until there is a large increase in wages, I doubt this trend will reverse unless interest rates normalize or a currency default occurs. As most companies are still in survival mode, they will continue to cut wages and jobs whenever possible. The big push for expanding immigration and offshoring jobs via the TPP don’t bode well for domestic labor.

So, why might the market value of money fall in the economy is weak. Well, money is a proportional claim on the future output of society. A weak economy may erode confidence in the long-term economic prospects of society. If this happens, then the market value of money falls: people expect less future output and more base money.

Of course, it’s also possible that I completely misunderstood the analysis presented here.