Henry Hazlitt knew the works of Mises as well as anyone but he was not mainly a theoretician. He was a financial journalist, commentator, and interpreter of current events. In this sense, he was one of a kind: a learned economist with both feet in the real world of politics, financial markets, and the economics of everyday life.
The Inflation Crisis and How to Resolve It , newly in print in hardcover at a low price, is his masterpiece on money. The book reappears just in time: we are in the midst of an inflation crisis even if the effects are not yet fully felt.
By inflation, he didn’t mean rising prices. He meant the tendency of government and the central bank to print money in pursuit of prosperity. In this sense, no book could be more directly related to our own times, as Bernanke and Company use and abuse the power of the Fed as never before.
He begins with an overview of what inflation is and covers the abysmal record of government money management. He clearly explains the cause and effect: first comes the printing and then come the business cycles and price increases. He explains that the only real cure for all of the effects is to treat the cause: end the government’s power to print. For this reason, Hazlitt favors a gold standard.
The first section is perfect as an introduction to the topic but the second section is enormously valuable for anyone who wants more depth on the topic. He explains what is wrong with monetarism, what is wrong with demand-side management, what is wrong with the Phillips Curve, what is wrong with theories about “unused capacity,” what is wrong with government stimulus packages, what is wrong with inflation indexing, why inflation tends to be global now, and he even adds a very thoughtful critique of Hayek’s proposal for free choice among currencies: it does go nearly far enough to reform money.
From a reader point of view, Hazlitt’s book is pure pleasure. As Mencken said of him, he was the only economist of his generation who could really write. He is clear as a bell, and why? Because he had a passion for explaining economics to every living person. He did not think that economics should be left to the academy or to investment firms. Like Mises, he believe it was the business of everyone.
This book came out in 1978 and it’s been thirty years out of print. It was supposed to be a redo of What You Should Know About Inflation, but as Hazlitt said, it turned into a completely new book. This is one that the Mises Institute wanted to have in print for many years, and it is an event to celebrate that it is finally here, in a beautiful edition at a rock-bottom price.
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Wikipedia states that Hazlitt was an associate editor of The Nation, a left wing rag. What does one make of Hazlitt? Was he a socialist in disguise?
@HayekHeroes
He was also a writer for the New York Times. The positions of certain organizations have made dramatic shifts int he last 75 years.
Read “Betrayal of the American Right ” by Rothbard. You’ll get a sense of what was going on during the time of Hazlitt, Nock, and Mencken.
He left The Nation after the pub endorsed the New Deal
I don’t care about money inflation as long the standard of living for the working class doesn’t fall. “Money” is only numbers in computer memory.
70 years ago a worker could buy four gallons of gas with an hour’s pay and still can. Food, tools, and clothing are much cheaper. Housing has probably doubled but that is mostly because of zoning and building rules. Cars are about the same. Medical care is higher but would not be if we were satisfied with 70 year old medicine.
I believe that Hazlitt was forced out of the New York Times over his opposition to the Bretton Woods Agreement, which he believed was inflationary and would eventually breakdown.
This is a great book! My copy is ancient. A timely and necessary addition to the Mises.org library.
billwald,
“70 years ago a worker could buy four gallons of gas with an hour’s pay and still can.”
Inflation means you can’t save money, you have to buy commodities in order to preserve your wealth or else you will work many hours for nothing.
If your worker worked 70 hours and then put that money in a bank or worse under his mattress, today it would buy a gallon of gas. That man worked 69 hours for nothing. That’s inflation !
Inflation makes it impossible to save money.
http://mises.org/books/inflationcrisis.pdf
Do you think it’s a brillant investment strategy to stuff money under a bed for 70 years, 2A? Besides, real prices being slightly cheaper than before means economic growth hence there ought to be investment opportunities that keep you ahead of inflation.
Gil, some of your posts are seeming increasingly bizarre. First of all, 2A was pointing out that absent money inflation, stuffing money under a mattress would earn at least a zero return (and probably more than that, given a gentle price deflation). But because of government and the Fed, the dollar has lost 95% of its purchasing power in less than 95 years. Yes, there are ways to invest and still make money despite the horrors of government-run money inflation. But that is not the point of this post, nor is it relevant to anything the Mises Institute says or does. These forums are for discussing economics and political philosophy, and I’m not sure how some of your recent posts have been intended to contribute to those topics.
So you are saying stuffing money under a mattress for decades ought to be a legitimate form of investment, R. Garcia? Billwald rightly pointed out that the big question is whether the amount goods & services is increasing. Or is not the improvement in the standard of living more important than what constitutes ‘money’? If something went horribly wrong and the amount goods & services were diminishing fast despite being in a gold coin economy then it’s going to be the equivalent of high-paced inflation.
Gil, the point was that inflation warps the signals that prices provide in a market, causing less-efficient use of capital. The mattress example was just a way to illustrate its effect on what should otherwise hold its value over time. And even if we ignore the effects of inflation, those causing it steal capital from others the same way a counterfeiter does (because that’s what they are).
“there ought to be investment opportunities that keep you ahead of inflation.”
That’s the problem Gil, we are being FORCED by the government to wrestle and fight against inflation or run the risk of loosing all our savings if we don’t.
Workers should have the option of stashing their cash without worry and invest in themselves or their own private contracting enterprise.
A construction contractor should not have to worry about inflation and desperately looking where to invest to preserve wealth. He should be able to sleep well at night knowing he is earning honest money.
Gil,
“So you are saying stuffing money under a mattress for decades ought to be a legitimate form of investment”
No, but it ought to be a legitimate form of SAVING !
You are confusing investment with saving.
There are people who just want to save and preserve their wealth, not to invest.
You invest when you want to grow your wealth. You save when you want to preserve wealth.
Thanks to the government and it’s inflation, we are now all forced to invest money just to preserve wealth.
The government does not want you to save your labor, they want you to either spend or invest and that is the problem.
Gil,
The problem with investing is that it carries an element of risk. The more return you anticipate, the more risky your investment must be with respect to it’s returns.
In an inflationnary environment, you cannot save money without risk because then inflation destroys the value of your savings.
You are thefore forced to invest your money in order to negate the wealth destruction of inflation.
The higher the inflation and the higher your investment returns must be in order to compensate. But also the riskier they become.
So inflation forces the masses to take unnecessary or unwanted risks just to preserve their wealth. And the masses are not all experts on financial instruments.
I suspect that there will be more gold bugs as inflation goes up.
Inflation is like a bar I once went to. I just wanted to sit down and enjoy my beer, but when it hit midnight, they would pump up the music and force everybody to dance. If you would sit down they would jump on your table, and force you to dance.
The inflation forces individuals to do the rat dance, as opposed to the rat race. Not all of us are dancers.
Gil,
“If something went horribly wrong and the amount goods & services were diminishing fast despite being in a gold coin economy then it’s going to be the equivalent of high-paced inflation.”
This is true, and all economic crisises are caused production and productivity reduction.
The best method to ensure that goods and services remain plentiful is to ensure that money is worth working for. That way people will make more and more efforts for money and goods and services will be plentiful.
But when taxes and inflation eats it all, people won’t work for nothing and goods and services will become scarce.
Every economic crisises are a sudden scarcity of goods and services.
Inflation is applying the wrong medicine. We need more goods and services produced in America, not more money.
The best remedy for this is deflation. By having money which is worth more and more over time, people will offer more of their goods and services right away to get that money right away.
Inflation depletes goods and services and reduces their availability.
Gil,
In fact, inflation is what creates booms, busts and bubbles.
Because of inflation, people may no longer save their money. Inflation forces people to invest money who would have otherwhize saved it.
So everybody is racing towards the stock market, bond market, real estate etc. In order to invest their money just to hedge against inflation.
This creates a non-natural flow of capital into all sorts of malinvestments.
Later comes the bust and all the problems that follows it.
It would be best that the government would leave money alone and that those who invest really want to and not because they are forced to.
We have come from a saving nation to a debtor nation. Now people purchase goods and services on credit instead of out of their pockets.
Saving money, having savings gives you freedom, dignity and respect.
Owing yourself to many creditors is not what I would call freedom.
Since I am a saver, I am forced to live a life of ascetism just so I can save enough money after all the taxes I paid.
And since saving money is a bad idea, I am currently taking enormous risks at the stock market. I might make a fortune like I might end up dirt broke.
But since I maintain a minimum lifestyle, I can take the risk.
But not everybody can do what I do and they need to save money but then again taxes and inflation destroys the incentive to save.
I am trying to navigate this economic crisis and I’m wondering how to find out what the best investments are right now? Also, what do you think about buying gold, silver, etc.?
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