Sometimes I fear that America is coming apart at the seams. Both political parties endorse huge inflationary spending schemes that are socialistic in nature. The economic philosopher Leonard Read (1898-1983) warned, “Inflation makes the extension of socialism possible by providing the financial chaos in which it flourishes. The fact is that socialism and inflation are simultaneously cause and effect; they feed on each other!”
No one ever explained the damage that inflation does like the great libertarian economist Henry Hazlitt (1894-1993). He wrote, “Inflation must always end in a crisis and a slump, and worse than the slump itself may be the public delusion that the slump has been caused, not by the previous inflating, but by the inherent defects of a free market.
“Inflating is harmful because it depreciates the value of the monetary unit, raises everybody’s cost of living, imposes what is in effect a tax on the poorest…wipes out the value of past savings, discourages future savings, redistributes wealth and income wantonly, encourages and rewards speculation and gambling at the expense of thrift and work, undermines confidence in the justice of a free enterprise system, and corrupts public and private morals.”
He continued, “A period of inflation is almost inevitably also a period when demagogy and antibusiness mentality are rampant. If implacable enemies of the country had deliberately set out to undermine and destroy the incentives of the middle classes to work and save, they could hardly have contrived a more effective set of weapons than the present combination of inflation, subsidies, handouts, and confiscatory taxes that our own politicians have imposed upon us.”
Mr. Hazlitt explained further, “In a free enterprise system, with an honest and stable money, there is dominantly a close link between effort and productivity on the one hand, and economic reward on the other. Inflation severs this link. Reward comes to depend less and less on effort and production, and more and more on successful gambling and luck.”
He continued his litany of warnings: “It is not merely that inflation breeds dishonesty in a nation. Inflation is itself a dishonest act on the part of government, and sets the example for private citizens. When modern governments inflate by increasing the paper money supply, directly or indirectly, they do in principle what kings once did when they clipped coins. Diluting the money supply with paper is the moral equivalent of diluting the milk supply with water. Notwithstanding all the pious pretenses of governments that inflation is some evil visitation from without, inflation is practically always the result of deliberate governmental policy.”