by Brian Balfour
Senior Vice President of Research, John Locke Foundation
With the latest inflation number clocking in at an annualized 7.5%, the highest in 40 years, progressives continue to conjure up laughable excuses for inflation in order to deflect from its actual cause.
For a concise and definitive primer on inflation and its causes, one can do no better than this iconic essay by the late, great economist Henry Hazlitt.
Appropriately titled “Inflation in One Page,” Hazlitt gets right to the point:
“Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.”
Hazlitt continues, “The causes of inflation are not, as so often said, ‘multiple and complex,’ but simply the result of printing too much money.”
Indeed, as Hazlitt explains:
“There is no such thing as ‘cost-push’ inflation. If, without an increase in the stock of money, wage or other costs are forced up, and producers try to pass these costs along by raising their selling prices, most of them will merely sell fewer goods… Higher costs can only be passed along in higher selling prices when consumers have more money to pay the higher prices.”
Blaming price inflation on “greedy corporations” is silly. Without the newly-printed money, consumers wouldn’t be able to pay higher prices for goods and services across the board. Higher prices in certain goods or services would cause either demand for those goods to fall or otherwise leave consumers with less money to buy other products, causing those prices to fall.
With that established, Hazlitt explains the most frequent cause of such money printing: “The most frequent reason for printing more money is the existence of an unbalanced budget.”
And combatting price inflation with government price controls “cannot stop or slow down inflation,” Hazlitt added. “They always do harm. Price controls simply squeeze or wipe out profit margins, disrupt production, and lead to bottlenecks and shortages.”
The only way to reverse inflation is to identify and address its true cause. Biden’s claim that printing another $1.2 trillion for his “Build Back Better” scheme will provide relief for families struggling with higher gas and grocery bills is like the arsonist saying he’ll put out the fire by throwing gasoline on it.