In Jim Cook's Archive


We’re yet to experience the difficult economic times that inevitably follow the implementation of policies to fight inflation. A sharp downturn in money supply growth along with rising interest rates will curb economic activity and raise unemployment. If a slowdown begins to look dangerous the politicians will howl, and the monetary authorities will begin to loosen once again. Inflation will always be resorted to before deflation gets serious.

The economist Ludwig von Mises, who lived through the Weimar inflation wrote, “Those who pretend to fight inflation are in fact only fighting the inevitable consequences of inflation, rising prices…They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar.” He warned, “Inflationism is not a variety of economic policies. It is an instrument of destruction, if not stopped very soon, it destroys the market entirely…Continued inflation inevitably leads to catastrophe.”

Mises continues, “Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness.” He continued, “Accidental institutional and psychological circumstances generally turn the outbreak of the crisis into a panic. The description of these awful events can be left to the historian. It is not our task to depict in detail the calamities of panicky days and weeks… The final outcome of the credit expansion is general impoverishment. Some people may have increased their wealth, they did not let their reasoning be obfuscated by the mass hysteria and took advantage in time of the opportunities offered by the mobility of the individual investor…but the immense majority must foot the bill for the malinvestments and the overconsumption of the boom episode.”

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