The Internet's Best 2 Minute Introduction to Inflation
Nov 28, 2022 · 2 mins read
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Inflation is in the news and there is no one better to understand it with than Henry Hazlitt. He wrote economics books that sold millions of copies, ran the economics desk atNYT and Newsweek for decades, and inspired presidents and Nobel prize winners. Hazlitt on inflation👇
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The simplest possible definition of inflation: "Inflation is an increase in the supply of money that outruns the increase in the supply of goods." More money chasing the same number of goods bids up the prices of said goods, bringing down the currency's purchasing power.
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Why inflation is bad: "It depreciates the value of the monetary unit, raises everybody's cost of living, imposes what is in effect a tax on the poorest at as high a rate as the tax on the richest, wipes out the value of past savings, discourages future savings."
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Who inflation hurts the most: "The thrifty, the aged, those who cannot protect themselves by speculation." Inflation "encourages and rewards gambling at the expense of thrift and work." Inflation is theguarantee money will be worth less tomorrow - whynot spent it away?
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Why does the inflation scam continue? Hazlitt’s great answer: “It goes on because governments wish to spend, partly for armaments and in most cases preponderantly for subsidies and handouts to various pressure groups, but lack the courage to tax as much as they spend.”
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Currencies unbacked by the Gold standard inevitably get decimated by political opportunism: “The world's currencies are essentially paper currencies, adrift without an anchor, blown about by every political wind, and at the mercy of every bureaucratic caprice.”
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Gold checked in governments' financial recklessness: “Historically one of the best protections of the value of money against the inroads of political spending was the gold standard—the redemption of money in gold on demand. This put a check-rein on the politician.”
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To summarize: Democratic governments wish tobuy votes via handouts, subsidies, and affirmative action programs. This money can come via taxes but raising taxesalso loses votes. Therefore governments print this money and throw it around under the framework of programs. But...
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You can't print goods and services like you can print money. More money chasing the same # of goods produces inflation. Now people's incomes and life-long savings are worth less every passing day, incentivizing them to put them in speculative property, stocks, and beyond.
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In his first ever book published at the age of 21, Hazlitt explains how he taught himself to think, read and write well without going to college. His insights are relevant for all the auto-didacts of the internet age. Also see: Henry Hazlitt's Book Recommendations.
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