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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 overgenerous 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.
FAQ about inflation and
money printing here
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