Inflation in One Page
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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 unbal- anced 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” infla- tion. 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 sell- ing 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 con- trols simply squeeze or wipe out profit mar- gins, disrupt production, and lead to bottle- necks 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 poli- cies.
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 extor- tionate 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.
Comment by Kevin Beck on 17 November 2009:
I would add these:
1. Politics is the redistribution of capital from the productive to the non-productive (a slight restatement of #2 above);
2. The unbalanced budgets of today represent a drag on the future. Excessive government expenditures to prevent failure just make it harder for the successful to continue doing what they should be doing, which is: succeeding;
3. Unbalanced budgets represent the efforts of nationalizing local problems and sticking the entire country with the bill.
I think the above post should be required reading and required comprehension by anyone who wants to exercise control over the citizenry.