Inflation is a government problem | Letters to the Editor

“Inflation is everywhere and always a monetary problem.” These words of the late Milton Friedman ring as true today as when they were first spoken. This means that there is only one cause of inflation: the government. For those of you facing rising costs for everything you buy, thank the politicians you elected. They might not even know it, but they are stealing from you blindly.

Free markets do not raise prices. In fact, they lower the prices. Take the example of a company that sells its product for $ 50. The product will continue to sell for that price until one of two things happens: either another company makes a better product for the same price, or someone offers an equivalent product for a lower price by because of more efficient manufacturing and distribution. This is the essence of the free market economy. Consumers always win.

So why do we have inflation? In all cases of history, inflation has been caused by government activity. The main culprit, as explained by Friedman, is government control and the expansion of the money supply. More dollars for the same amount of goods and services necessarily leads to higher prices.

People also read …

A good example of this was seen during the Second Industrial Revolution which followed the Civil War. During a period of relatively low government interference, astonishing advancements in technologies such as petroleum, steel, shipping, manufacturing and electrification resulted in the greatest improvement in the human condition ever. in the history of Western civilization. New and amazing products like cars, electric lights, and indoor plumbing and heating have been made available to the general public due to dramatic price reductions.

Then came the government. First, there has been an indirect increase in the money supply caused by a rapid accumulation of gold reserves. Global mining has rapidly increased the effective money supply, offsetting some of the price reductions brought about by industry. When the gold standard was subsequently abandoned in favor of fiat money, the government continued to expand the money supply which, in turn, continued price inflation.

By the way, the government also introduced misguided and envy-motivated restrictions on businesses that only served to create crony corporatism and create barriers to entry preventing innovative small businesses from entering. prosper. Thank you very much, Governor.

The Cantillon effect, which shows that when governments increase money supply, funds do not flow evenly, further complicates matters. Instead, they go first to Buddies with the closest dealings with government officials, then to investment class assets like stocks and real estate, followed by the general price of commodities, and finally , salaries. It sounds a lot like that evil “trickle down” that leftists mistakenly try to attribute to capitalism, but it is a direct effect of government action, having nothing to do with free markets. The net result is an increase in income inequality, class envy and general domestic unrest.

Another way for the government to raise your prices is to interfere with the effective functioning of natural free markets. The most efficient way to spend money has been shown to be for a person to spend their own money on themselves; it tends to do the best cost-benefit analysis and get the most bang for the buck. Conversely, the worst way to allocate scarce resources is to have people spend other people’s money on other people. This is the exact definition of public expenditure. Too much is paid for too little in return.

Watch the news for confirmation. On the one hand, we see politicians from across the country engaging in “infrastructure tours” where they roam the country bragging about spending their dollars on “infrastructure.” These expenditures are naturally not geared towards maximum efficiency, but rather are meticulously planned to be spent by politicians in places where they will derive the maximum political benefit. The inefficiencies here should be obvious to everyone.

Second, we hear, “Despite inflation, spending is on the rise. It’s a bit more nuanced, but the claim is that despite supply chain shortages, retail sales measured in dollars (not commodities) continue to rise. No kidding, but the increase in spending is a direct result of rising prices, not the increase in the purchase of goods. GDP is calculated as the quantity multiplied by the price. If prices go up, so does the GDP. If quantities go down, but less than prices go up, how can that be a good thing?

Isn’t that just “transient?” Yes, but the continued existence of Man on this planet is too. In a way, that fact doesn’t make me feel any better.

All of these examples show how government activity has destroyed the normal functioning of a free market and replaced it with a less efficient system. Everyone now pays more and receives less. This is how the wealth of a nation is destroyed.

Source link

Comments are closed.