By Mises.org, Originally printed in Newsweek on October 14th, 1946 as "Inflation, Deflation, Confusion." Available in Business Tides: The Newsweek Era of Henry Hazlitt
Hazlitt, 1946: Inflation, Deflation, Confusion
In the last two years left-wingers have been fond of referring to private enterprise as a “boom-bust” economy; OPA officials have contended that only price fixing can prevent a repetition of the 1920–21 boom and collapse, and British statesmen have insisted that their new “democratic socialism” will work beautifully if only mercurial America doesn’t crack again and drag the rest of the world down with it. Small wonder that so many people now ask each other whether the recent slump in the stock market does not at last foreshadow this longpredicted business setback.
The question is not easy to answer, because the American economy has now become the football of political policies and counterpolicies that are not inherent in it but essentially external. These conflicting political policies are on the one hand those tending to create inflation, and on the other those tending to bring about disruption.
The inflationary forces are obvious, and until now have been controlling. Their primary causes are government deficit financing and other political policies that increase the volume of money and credit. Past inflationary forces are roughly measured by the increase in the national debt to $265,000,000,000 and of money and credit to more than three times the prewar volume. Potential future inflation is indicated by a still unbalanced budget in prospect (in spite of a balance in the first quarter of the current fiscal year), and by a policy of artificially low interest rates that promotes further increases in credit and further monetization of the public debt. As long as inflation raises prices faster than costs it stimulates business expansion, new ventures, and employment.
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