If a government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequences.
Interpretation
Government-induced inflation leads to inevitable negative economic impacts that cannot be hidden by manipulation.
Henry Hazlitt's quote highlights the dangers of government intervention in the economy through inflationary practices. When a government resorts to printing money to address budget deficits or expand credit, it undermines the currency's value and ultimately leads to adverse economic consequences that cannot be avoided, irrespective of any measures taken to counteract these effects.
In practice
This quote can be used in a discussion about fiscal policy during a debate on government spending.
A man with a scant vocabulary will almost certainly be a weak thinker. The richer and more copious one's vocabulary and the greater one's awareness of fine distinctions and subtle nuances of meaning, the more fertile and precise is likely to be one's thinking. Knowledge of things and knowledge of the words for them grow together. If you do not know the words, you can hardly know the thing.
Mere inflation-that is, the mere issuance of more money, with the consequence of higher wages and prices-may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.
Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine - the special pleading of selfish interests.
The only way we could remember would be by constant re-reading, for knowledge unused tends to drop out of mind. Knowledge used does not need to be remembered; practice forms habits and habits make memory unnecessary. The rule is nothing; the application is everything.
The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.
Economics is haunted by more fallacies than any other study known to man
It is inherent in the nature of the capitalistic economy that, in the final analysis, the employment of the factors of production is aimed only toward serving the wishes of consumers.
I will not let anyone tell me we must spend more money. This crisis did not come about because we issued too little money but because we created economic growth with too much money and it was not sustainable growth.
The benefit of appointing a hawkish central banker is the increased inflation-fighting credibility that such an appointment brings.
China's government has far more control over the country's economy than our government has over ours, and it is moving from export dependence to a model of growth driven by domestic demand. Any restriction on exports to the U.S. would simply accelerate a process already underway.
To get back to the kind of shared prosperity and upward mobility we once considered normal will require another era of fundamental reform, of both our economy and our democracy.
It is my guiding confession that I believe the greatest error in economics is in seeing the economy as a stable, immutable structure.
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