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
One of the evils of paper money is that it turns the whole country into stock jobbers. The precariousness of its value and the uncertainty of its fate continually operate, night and day, to produce this destructive effect. Having no real value in itself it depends for support upon accident, caprice, and party; and as it is the interest of some to depreciate and of others to raise its value, there is a continual invention going on that destroys the morals of the country.
When you bring in multi-brand retail items into the country, you're not just bringing the products, but you're also harming local manufacturers.
Economy consists in a due and proper application of the means afforded according to the ability of the employer and the situation chosen; care being taken that the expenditure is prudently conducted.
There's a long list of investments that governments could and should be making. There is strengthening infrastructure, such as transport and communications; there is investment in education; there is investment in families, particularly putting measures in place that free women from having to make the choice between raising a family and work.
The budget should be balanced not by more taxes, but by reduction of follies.
Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.
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