Rumors of Bastiat's lack of interest in monetary theory have not only been exaggerated, they are patently untrue. Indeed, Bastiat places the role of money at the center of the economy and portrays ignorance of its nature as one of its greatest dangers. Not only does he explain the nature of money, but he also very cogently explains the inevitable results of a failure to understand that nature.
The deflation-phobia of our elites is the rational reaction of those who profit from the privileges that our present inflationist regime bestows on them, and who stand to lose more than any other group if this regime is ever reversed in a deflationary coup. Perennial inflation is based on monopoly. Deflation brings in the fresh winds of the free market.
While the Federal Reserve-induced stock market bubble has been flattened, despite continuous inflating by Greenspan's troops, the land price bubble continues to expand in Las Vegas.
There is no radical disconnect between the interest of consumers (who always want lower prices) and overall economic health. What's good for consumers is good for everyone, writes Lew Rockwell. Thus one can only marvel at the many economists and commentators who try to convince the public that deflation is a very scary thing.
The Fed is powerful but it can't create economic growth, writes Frank Shostak. Contrary to Monetarist claims, even the attempt to flood the markets with money can backfire if the conditions that allow for sustainable investment don't exist. More pumping destroys real funding and destroys more businesses, which in turn makes banks reluctant to expand lending.
How much comfort can the U.S. take in the sufferings of Japan? In a side-by-side comparison of the productivity of the two economies, the U.S. comes off looking worse than one might expect, while Japan, long in the mire of recession, not as badly as one might assume. Example: in the past 12 months, government spending in Japan fell by its largest amount in at least 22 years.
Some commentators have tried to revitalize the old Keynesian idea of the liquidity trap. Although the trap itself follows from the J.R. Hicks IS-LM analysis, the basic idea is borrowed from J.M. Keynes. In fact, Japan has not been been in such a trap in the years following 1990, and the whole idea of the trap is gravely flawed.
The Fed has announced that it will turn its attention from fighting inflation to fighting deflation. There are serious problems with this approach, writes Frank Shostak. There is nothing wrong with lower prices, and if currency depreciation could improve economic conditions, poverty would have been eradicated a long time ago. In fact, pumping the money supply even more could lead to all round economic devastation.
There are clues and warnings, beyond mere contrarian instincts, that inflation will once again have her day. Inflation is a process that forcefully re-distributes wealth from one group to another. Prices do not change uniformly in this process, and those that get the new dollars before their costs have risen gain at the expense of those whose costs rise first.
The popular notion that an increase in the stock of money is socially and economically beneficial is one of the great fallacies of our time. It has lived on throughout the centuries, embraced by kings and presidents, politicians and businessmen. It has shattered numerous currencies, inflicted incalculable harm, and caused social and political upheavals.
