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Bradley in DC
12-13-2007, 02:59 PM
http://fee.org/pdf/the-freeman/hazlitt1104e.pdf

Ideas On Liberty
NOVEMBER 2004
Inflation in One Page
by Henry Hazlitt

1. Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.

2. The most frequent reason for printing more money is the existence of an unbalanced budget. Unbalanced budgets are caused by extravagant expenditures which the government is unwilling or unable to pay for by raising corresponding tax revenues. The excessive expenditures are mainly the result of government efforts to redistribute wealth and income—in short, to force the productive to support the unproductive. This erodes the working incentives of both the productive and the unproductive.

3. The causes of inflation are not, as so often said, “multiple and complex,” but simply the result of printing too much money. There is no such thing as “cost-push” inflation. If, without an increase in the stock of money, wages or other costs are forced up, and producers try to pass these costs along by raising their selling prices, most of them will merely sell fewer goods. The result will be reduced output and loss of jobs. Higher costs can only be passed along in higher selling prices when consumers have more money to pay the higher prices.

4. Price controls cannot stop or slow down inflation. They always do harm. Price controls simply squeeze or wipe out profit margins, disrupt production, and lead to bottlenecks and shortages. All government price and wage control, or even “monitoring,” is merely an attempt by the politicians to shift the blame for inflation on to producers and sellers instead of their own monetary policies.

5. Prolonged inflation never “stimulates” the economy. On the contrary, it unbalances, disrupts, and misdirects production and employment. Unemployment is mainly caused by excessive wage rates in some industries, brought about either by extortionate union demands, by minimum-wage laws (which keep teenagers and the unskilled out of jobs), or by prolonged and over generous unemployment insurance.

6. To avoid irreparable damage, the budget must be balanced at the earliest possible moment, and not in some sweet by-and-by. Balance must be brought about by slashing reckless spending, and not by increasing the tax burden that is already undermining incentives and production.

LeonardK
12-13-2007, 03:12 PM
Good intro but this seems to ignore supply and demand. If supply is constant while demand rises, prices will rise, and if supply falls while demand remains constant, prices will rise, both without regard to govenment printing money.

Take oil for example. Worldwide demand rises while supply doesn't rise as quickly. Price rises regardless of printing money. (Price rises more for us because we are printing money.)

murrayrothbard
12-13-2007, 03:20 PM
Good intro but this seems to ignore supply and demand. If supply is constant while demand rises, prices will rise, and if supply falls while demand remains constant, prices will rise, both without regard to govenment printing money.

Take oil for example. Worldwide demand rises while supply doesn't rise as quickly. Price rises regardless of printing money. (Price rises more for us because we are printing money.)

That's why point 1 defines inflation as an increase in the money supply and says it is a misuse of the term to say inflation = rising prices. You can have massive inflation without a corresponding increase in prices. Rapidly expanding production can mask the inflation by keeping prices down. However the damage to the production structure is still done.

Green Mountain Boy
12-13-2007, 03:28 PM
This article fails to mention that the vast majority of new money (inflation) is created by consumers requesting credit from commercial banks - not from the government borrowing money.

...Although I suppose you could call the gov't a "consumer".

fsk
12-13-2007, 04:15 PM
I don't know what Green Mountain Boy is smoking. I thought that most borrowing was done by large corporations, banks, and hedge funds.

Consumers paid a MUCH HIGHER rate than corporations, banks, and hedge funds when they borrow money.

Green Mountain Boy
12-13-2007, 04:34 PM
I don't know what Green Mountain Boy is smoking. I thought that most borrowing was done by large corporations, banks, and hedge funds.

Consumers paid a MUCH HIGHER rate than corporations, banks, and hedge funds when they borrow money.

What I meant was most monetary inflation does not come from the Gov't borrowing money - it comes from other places (consumers, financial sectors).

integrity
12-13-2007, 04:37 PM
watch "money as debt"