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What You Should Know About Inflation (1960) Paperback – September 10, 2010
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Hazlitt, whom H.L. Mencken once called one of the few economists who could write clearly, wrote this little book in the late 1960s, as the inflationary spiral of the mid-1960s to 1981 was just beginning. It's a little gem and an excellent companion to his classic, "Economics in One Lesson."
It isn't really dated at all, as the same economic errors are repeated throughout history. Like Ron Paul today, Hazlitt insists that the only way to prevent inflation is to return to the gold standard. He writes:
"Nothing has more clearly demonstrated the need for the gold standard than its abandonment. Since that occurred, in Britain in 1931 and in the United States in 1933, the world has been plunged, both in wartime and in peacetime, into a sea of paper money and unending inflation."
Sound familiar? 1968 = 2009
Yes, that’s right: the current economy. For although this book was published in 1960, when the author was 65, the process of monetary inflation, which Henry Hazlitt felt was already doing so much harm to the U.S. economy and society in the 1950s, has proceeded since then almost unabated. Hazlitt died in 1993, but had he somehow survived until today, he would no doubt be depressed at our collective failure to put a stop to this entirely preventable man-made evil.
I learned about this book while reading The Golden Revolution: How to Prepare for the Coming Global Gold Standard by John Butler, in which Butler refers favorably to a simple plan proposed by Hazlitt to restore a gold backing to the U.S. dollar. Having read and enjoyed Hazlitt’s Economics In One Lesson, and being myself concerned about the runaway train of inflation, I immediately got myself a copy of this work.
While this book is not as good as Economics in One Lesson, being mainly an edited compilation of pieces from Hazlitt’s “Business Tides” column for Newsweek, it does treat the topic of inflation simply, thoroughly, and authoritatively. From the layman’s perspective, one of the many problems with inflation is that even the so-called experts–economists, businessmen, financial bureaucrats–don’t agree on the causes of inflation and indeed do not even use the word to denote the same thing. With things in such confusion, there’s no hope of coming to grips with the problem.
Milton Friedman is famous for saying “Inflation is always and everywhere a monetary phenomenon.” This appears in his 1963 book Inflation: Causes And Consequences. But I note that Hazlitt’s book, published three years earlier, has this sentence on page 1:
"Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit."
The next sentence is, “In fact, inflation is the increase in the supply of money and credit.” This shift is important, for the first sentence takes inflation in the commonly understood sense of “generally rising prices”, but the second sentence identifies inflation as the cause of rising prices. Only by understanding the cause can we effect a cure.
In 44 short chapters Hazlitt deals with many aspects of inflation: what it is, what its effects are, the ambivalence of governments toward it, the difficulty of seeing it for what it is. He shows how inflation is destructive of wealth and of society, but that nonetheless it is promoted by governments and by most economists as necessary to realize “full employment” and to prevent or mitigate downturns in the economy. Hazlitt easily demonstrates the falsity of these notions.
Inflation is deliberately produced by central governments, who create money from nothing in order to fund operations which they know they could never fund through taxation. No new wealth is created by inflation. It is a zero-sum game in which some people benefit and others lose. Those who benefit are the ones closest to the sources of the newly created money and credit–the government, the banks, and their contractors and main clients. Those who lose are pretty much everyone else. The way we lose is by finding that prices keep going up faster than our income. The wealth that we’ve lost has been magically and involuntarily transferred to those who are printing the money.
This problem is not new. Even in the ancient world, when money consisted of precious metals, rulers would clip and adulterate the coins in order to spend beyond their means. And the boost of wealth they enjoyed was always exactly balanced by a loss of wealth by their subjects.
Because the only people who can stop inflation are exactly the ones who benefit most from it, inflation will remain a stubborn problem, and one that our rulers will never be candid about. If we wish to save our earnings and our savings, it is up to us in the grass roots to educate ourselves about this insidious evil. Hazlitt’s book, clear, short, and nontechnical, performs this task admirably.
The Occupy movement may never realize it, but this book should be their Bible.
Under the current tax code the poorest of Americans pay little or no income tax. This is fine. Even Adam Smith advocated a progressive tax. Inflation is a silent a tax that takes money from the pockets of the rich and poor alike and, for obvious reasons, affects the poor as much or more than the rich. Those with fixed rate debts benefit from inflation, but people from lower socioeconomic classes rarely have the credit scores or the savvy to protect themselves from the perils of adjustable rates. A politician cannot claim to care about the poor while advocating the sort of wanton borrowing for deficit spending that causes inflation.