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.
Interpretation
Inflation increases money supply but doesn't equate to real demand or production.
Henry Hazlitt's quote emphasizes that simply increasing the money supply, leading to inflated wages and prices, does not truly enhance economic demand or result in the production of tangible goods. Instead, it highlights the misconception that more money automatically translates to a more prosperous economy, disregarding the underlying principles of production and value.
In practice
In an economic lecture discussing the impacts of monetary policy.
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.
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.
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.
Economics is haunted by more fallacies than any other study known to man
The collapse of the world's banking system and the impending disaster of accelerating climate change are not separate phenomena. They are simply the most visible symptoms of a particular model of capitalism that will bring civilisation to its knees. But those symptoms will not get sorted unless and until we commit to a radical transformation of the way we create and distribute wealth in the world today
Governments don't reduce deficits by raising taxes on the people; governments reduce deficits by controlling spending and stimulating new wealth.
European officials thought that austerity was part of what they called their 'convergence policies,' of trying to bring countries together. Instead, it actually made things worse. There's more inequality within countries and more disparity across countries.
Inflation is probably the most important single factor in that vicious circle wherein one kind of government action makes more and more government control necessary. For this reason all those who wish to stop the drift toward increasing government control should concentrate their effort on monetary policy.
People want economy, and they'll pay any price to get it.
Large corporations, of course, are blinded by greed. The laws under which they operate require it - their shareholders would revolt at anything less.
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