Inflation

David Brady, Jr. reviews Jonathan Newman's latest children‘s book that explains money in a way that even modern adults can understand.

David Brady, Jr. reviews The Magic Coin by Dr. Jonathan Newman, a children‘s book that explains money in a way that even modern adults can understand.

It is easy to think of inflation as just being economic in scope. Yet, as inflation becomes an expected part of the body politic, it affects the culture as well, encouraging everyone to try to live beyond their means.

Rumor has it that the Federal Reserve was able to resist the president‘s demands to enable funding of the Korean War. However, a look at the record demonstrates conclusively that the Fed bowed to Harry Truman‘s wishes to do what it has done for a century: finance America‘s wars.

Mainstream economists define inflation as the increase in an imaginary “price level” that is relatively neutral in its effects. Austrian economists, however, know better, as they realize that the effects of inflating the money supply are anything but neutral.

Why do cultures degenerate? At the recent Natal Conference, Robin Hanson cites biological and evolutionary factors. However, if one looks to Mises and the Austrians, we look squarely at human action that begins with the human mind and purposeful action.

In a sound monetary system and a free market, overall prices would generally fall as the economy grows faster than the money supply, enabling people to purchase more with their money.

Bankruptcy in the short term is painful. In the long term, it is cleansing decades of poor federal government choices.

People often confuse economic growth with growth in the stock market, but while these two things can be related, that is not always the case, especially during inflationary times.

Ultimately, interest rate caps would cost Americans access to a convenient and reliable source of credit. Instead of saving them money, a rate cap would push consumers into worse credit options.