We live in the Age of Inflation. It has become a fixed idea among governments that their paramount economic aim must be to maintain “full employment,” and that full employment can be maintained only by deficit financing, artificially cheap money, or direct recourse to the printing press.
Once under way, inflation sets in motion powerful special interests which demand its continuance. For it benefits some groups of the population at the expense of all the rest. Inflation is a tax—the cruelest and most wanton of all taxes. Under it, all creditors are systematically swindled.
Cynical Defense
“He that would hang his dog,” says an old proverb, “gives out first that he is mad.” He that would swindle a creditor must first give him a bad name. The late Lord Keynes did this by calling him the “rentier.” He implied that the rentier was simply an idle plutocrat who lived on unearned interest at the expense of the struggling workers. In his General Theory (page 376), Keynes spoke of “the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice.”
But who in the modern world are the creditors, the “rentiers”? They include, in addition to the holders of mortgages and corporate bonds, the thrifty, the small people who put their money in savings deposits or life-insurance policies, and all the owners of government bonds, who were induced to take these bonds for patriotic reasons. And who are the debtors who are being relieved of the allegedly dreadful burden of having to pay interest and repay capital in currency units of the same value as those they borrowed? They include the big corporations, the big holders of common stocks, and the speculators who have learned how and when to jump in and out and exploit the value of a depreciating currency.
I append a table compiled by Franz Pick for his forthcoming 1956 edition of Pick’s Currency Yearbook. This shows the depreciation of 53 currencies in the ten years from 1946 to 1955, as measured by each government’s owncost-of-living index. This table, it will be noted, shows that the U. S. dollar, the world’s monetary pivot, shrank 27 per cent in buying power over the past decade. The British pound sterling lost 35 per cent; the French franc 66 per cent. The currency units of Chile, Paraguay, Bolivia, and Korea had their purchasing power practically wiped out.
Currency Units
Loss of purchasing power (percent), 1956-55
Portuguese 0
Dominican 2
Egyptian 2
Haitian 3
Indian 10
Pakistan 10
Ceylon 11
Lebanese 16
Belgian 19
Swiss 19
German 22
Honduran 24
Irish 24
Italian 24
Guatemalan 25
Costa Rican 27
Danish 27
Ecuadoran 27
U. S. 27
Canadian 28
Netherlands 29
Norwegian 29
Iranian 30
Venezuelan 30
S. African 31
Spanish 31
Swedish 31
El Salvador 32
Turkish 32
Hong Kong 33
Thailand 33
Malayan 34
New Zealand 34
British 35
Colombian 46
Uruguayan 46
Iceland 48
Mexican 48
Nicaraguan 49
Australian 50
Finnish 52
Austrian 54
Peruvian 59
Brazilian 60
Greek 61
French 66
Japanese 67
Israel 68
Indonesian 69
New Taiwan 85
Chilean 91
Paraguayan 91
Bolivian 95
Korean 99
Some of the countries whose currencies suffered worst, such as Formosa and Korea, were struggling with special war or defense problems. But this was obviously not true in Chile, Paraguay, or Bolivia. The truth is that this shocking swindle by governments of their own citizens was brought about in most cases by deliberate monetary or credit inflation. And it was all done under the pious calamity visited on a country by calamity visited on a country by malevolent outside forces, which the politicians and monetary managers profess to be incessantly combating. []
Newsweek, June 25, 1956
Bad Money Discourages Production
As money is the sinews of every business, the introducing of a doubtful medium—and forcing it into currency by penal laws—must weaken and lessen every branch of business in proportion to the diminution of inducement found in the money.
Pelatiah Webster, Strictures on Tender Acts, 1780
Henry Hazlitt
Henry Hazlitt (1894-1993) was the great economic journalist of the 20th century. He is the author of Economics in One Lesson among 20 other books. See his complete bibliography. He was chief editorial writer for the New York Times, and wrote weekly for Newsweek. He served in an editorial capacity at The Freeman and was a board member of the Foundation for Economic Education.