I thought inflation was when the money suppy increased faster than the GDP. Increasing prices do not cause inflation, inflation causes increasing prices.
You are correct!!
Milton Friedman says, "[I]nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."
No, that is incorrect.
Inflation is simply the process of creating more money than there was to start with without the benefit of any real worth backing it.
Yes, you could print more money with real worth, but that new money would have to be backed by an identical increase in whatever valuable commodity that is backing it, such as gold, for instance.
Do not confuse a rise in prices with inflation.
Think about this:
Every day more virtual money changes hands in the form of electronic transactions, wired funds, PayPal payments and so on than there are printed dollars to represent. When I get paid by my employer via direct deposit, the only paper that changes hands is the stub they mail me. Aside from that, the number in their bank account goes down, and the number in mine goes up by a corresponding amount. When I buy groceries on my debit card, the number in my bank account goes down by the price of my groceries, while the number in the store's account goes up by a corresponding amount.
So, considering that, what does the term "money supply" actually mean?