(This essay appears in the Fall 2004 Mackinac Center newsletter "Impact.")
Some 25 years ago, well past the age of 80, Henry Hazlitt set about to compose a book on inflation. A succession of American presidents in the 1970s appeared at a loss to understand, much less remedy, an ongoing collapse of the worldwide monetary system. Though Hazlitt was not trained as an economist, there were few authors more qualified from a lifetime’s work — journalist, literary critic, economic scholar and philosopher — to produce the timely and prescient volume "The Inflation Crisis and How To Resolve It."
Hazlitt’s experience as an analyst of inflation was intensive and decades-old. At the end of World War II, he had been an editorial writer at the New York Times for 12 years when his opposition to the 1944 Bretton Woods international monetary agreements caused an irreparable strain in his relationship with the paper’s management. He eventually refused to write anything further on the subject, saying, "It’s an inflationist scheme that will end badly, and I can’t support it."
As a capstone to the work of the Mackinac Center’s summer interns, Board of Directors Member James Rodney suggested that they read Hazlitt’s book and write analytical and interpretive essays on it. These young staff members didn’t personally live through the severe dislocations caused by the extreme inflation of the 1970s, but it’s clear they have developed through reading Hazlitt’s book a deep understanding of inflation’s causes and its destructive effects. Excerpts from the essays illustrate three of the most important general lessons on inflation:
Economists often provide faulty definitions of
inflation, with an undue emphasis on rising prices. Hazlitt focuses on currency
expansion and its consequences.
"According to Hazlitt, inflation is
actually the degradation in the value of the currency."
— Richard Scherf, Central
"The ideal stable unit of currency
has neither physical utility itself nor fluctuations in value. Money with these
features would make it a neutral commodity with a set value, favoring neither
borrowers nor lenders, rich nor poor, governments nor citizens.
— James Hohman, Northwood
Inflation’s impacts are not simply economic, but
inevitably political, social and moral.
"Inflation calls to mind images of
a wheelbarrow of cash being used to buy a loaf of bread, images of a life’s
savings being wiped out in an afternoon. In reality, however, the effects of
inflation are much more mundane, insidious and difficult to detect. Though
commonly accounted for in our private financial practices, slower rates of
inflation still possess great power for social and financial ill.
— Nathan Russell, Hillsdale
Inflation is popularly viewed as a
natural occurrence, not to be feared, and perhaps even, to a certain extent,
desirable. People have grown accustomed to a gradual inflation and forgotten its
effects in the 1970s. Hazlitt, however, recalls for everyone that inflation is
not natural or desirable, and that the system that enables inflation should be
dismantled and replaced.
— Laura Davis, University of
The solutions for inflation involve an increase in
personal liberty and a reduction in the power of the state.
Hazlitt offers possible solutions
through the demonopolization of money by the government and the possibility of
offering privately created currencies.
— Bryan Dahl, Michigan State
The government also limits liberty
by not allowing free individuals in a free market to establish their own mediums
of exchange. The federal government monopolizes the minting of money and
prevents, by law, people from contracting and dealing in currency of their own
— Laura Davis, University of
Legal tender laws mean you have to
use money of the state, and this money is usually emitted by a central bank, or
government itself. … Repealing the legal tender laws would allow free
competition among currency issuers.
— Ondrej Hartman, University of
Economics (Czech Republic)
Hazlitt’s observations on personal freedom are timeless, and his conclusions about inflation have contributed enormously to the field of monetary economics. They are ideas that are too often absent today in college curricula. The Mackinac Center for Public Policy is pleased to have provided this summer’s class of interns with both policy research experience and the chance to review this important work of free-market literature.
Chris Bachelder is director of communications at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.