Money, contrary to the textbook image, is not a thing. It is a social technology — a unit of account and means of exchange maintained by institutional arrangements that nearly everyone uses every day without thinking about. What counts as money is itself contested. M1 is currency plus bank deposits. M2 adds savings accounts and money-market funds. M3 — and increasingly, in the post-2008 financial system, Treasury bills and other near-cash assets that function as collateral in repo markets — extends the count further. The most counter-intuitive fact about modern money is that most of it is created by commercial banks: the loan creates the deposit, and the deposit is money. Central banks create base money (reserves and currency) but control the broader money supply only indirectly, through interest rates and (post-2008) quantitative easing.
Inflation is the rate at which the general price level rises — the variable everyone is trying to explain whenever prices move. The arithmetic is straightforward: a 9% annual inflation rate (the US peak in June 2022) means a basket of goods that cost $100 last year costs $109 this year, and a dollar buys roughly 8% less. The causal picture is over-determined. The money supply, the velocity at which money circulates, fiscal stimulus, supply shocks, expectations of future inflation, wage dynamics, currency depreciation, and indirect taxes all affect prices. Disentangling their contributions in a specific episode requires assumptions that reasonable economists disagree about — which is why the post-2021 inflation surge has produced an active multi-school debate that is not yet settled. Hyperinflation — Weimar Germany 1923, Zimbabwe 2008, Venezuela 2017 onwards — is the limit case: when a government cannot fund itself except by printing money and the public loses faith in the currency, prices can double weekly. Disinflation is the reverse: the Volcker Federal Reserve (1979–1982) raised interest rates above 19%, induced a sharp recession, and broke the wage-price expectations of the 1970s — at a real cost in unemployment that defined the politics of the era.
Modern central banks — the Federal Reserve, the ECB, the Bank of England — target inflation explicitly, usually around 2% per year. The candid post-2021 acknowledgement from Powell (2022) and Bailey (2023) was that the standard forecasting models systematically underestimated both the magnitude and persistence of that inflation surge. Cryptocurrency (Bitcoin, stablecoins, central bank digital currencies) reopens the what is money question at the level of monetary plumbing rather than ideology. The competing macroeconomic schools that explain why inflation moves — monetarist, Keynesian, Austrian, MMT, real-business-cycle — are a separate concept; this brief is the mechanics they are arguing over.