15

The Specter of “Unused Capacity”

One of the most frequent excuses for inflation is that if a little extra money is printed its effect won’t be to raise prices but only to increase the volume of sales and production, because at the moment the new issues of money are being recommended industry is not working at “full capacity.”

16

Inflation versus Profits

One of the reasons why inflation is persistently advocated by Keynesians and others is that it is thought to increase the profitability of business. This is, in fact, an essential part of the argument of those who believe that inflation tends to bring full employment. By improving the outlook for profits, it leads enterprises to start new businesses or to expand old businesses, and therefore to take on more workers.

17

Inflation and Interest Rates

One of the persistent causes of inflation is the perennial demand for cheap money. The chronic complaint of businessmen, and still more of politicians, is that interest rates are too high. The popular complaint is directed especially against the rate for home mortgages.

18

How Cheap Money Fails

19

Indexing: The Wrong Way Out

Inflation is not caused by the issuance of too much paper money. Inflation is the issuance of too much paper money. Its most conspicuous consequence is to raise prices. But it never raises all prices, wages, and incomes simultaneously or to the same extent. The persons whose wages or incomes it raises least or latest suffer the most from inflation and raise the greatest opposition to it.

20

Inflation versus Morality

During every great inflation there is a striking decline in both public and private morality. Let us look at three outstanding historic examples.

21

Can You Beat Inflation?

22

Why Inflation Is Worldwide

For the first time in the history of the world, practically every country is on a paper-money basis and every country is inflating. It is instructive to recall how this has come about.

For a full explanation, we must go back at least sixty-four years to the outbreak of World War I in 1914. The first thing that happened, almost on the day the war broke out, was that the belligerents suspended the convertibility of their currencies into gold.

23

The Search for an Ideal Money

24

Free Choice of Currencies

The preceding chapter originally appeared, in slightly different form, in the Freeman of November 1975 (Foundation for Economic Education, Irvington-on-Hudson, N.Y.). Since then, Professor F. A. Hayek, the Nobel laureate, has published two remarkable pamphlets embodying similar proposals, but carrying them in some important respects further.