Root of All Evil; R. G. Anderson

472 are condemned and concern over the effects of inflation that gains our attention. The failure to distinguish cause from effect in the discussion of inflation is leading to disastrous consequences. This concentration on rising prices brings "solutions" that are complicating the problem ana resolving nothing. The danger in defining inflation as a general rise in prices is that it commingles inflation with many other eco nomic phenomena that could have had the same effect. This erroneous concept of infla tion (rising prices) leads to pro posals for wage and price controls -lately referred to as National Incomes Policy-foreign exchange controls, "government guidelines," and other such socialistic "reme dies." The insidious nature of these proposals lies in the illusion that, if they were adopted, they would eliminate inflation. As Pro1971 ROOT OF ALL EVIL 473 fessor Ludwig von Mises has long contended, th{~ ~al~e undeY'etand ing of inflation can lead only to false remedies.! Following such "remedies" yields a more collec tivized society, where individual effort is stifled, thus resulting in net losses in productive capacity.

But unfortunately, inflation will still be very much with us! The paradox is that while inflation's effects are unpopular, its cause, an increase in the quantity of money, goes largely unchallenged. Not Whether to Inflate, but How Much? Whether increases in the quan tity of money will continue is no longer even seriously debated in economic circles. Opinion favoring "monetarism" (manipulation of the money supply) is so over whelming in the academic com munity that the only current con troversy concerns when, and by how much, the money supply should be expanded or contracted. An understanding of the forces leading to this state of affairs is essential in order to grasp why inflation seems to be here to stay. Inflation is not something that happens because we like its effects. It is not something to be charged to the acts of devious and sinister 1 Ludwig von Mises, Planning for Freedom (South Holland, Illinois: Liber tarian Press, 1952), p. 78.

men. To seek base motives for the exi~tene~ of inft.ation would be futile. Inflation exists because the body politic sees it as an effective solution to another problem - a problem fundamental to the statist society - that of government fi nancing. Governments are not of them selves productive, wealth-creating entities. They derive their eco nomic capacity from their power to extract resources from the pri vate, productive segment of soci ety, Le., working individuals and businesses. The point is that gov ernments can give nothing to any one without first taking it from someone. In order to spend, gov ernments must tax! Further, it appears to be in the nature of governments to seek ever more power and, thus, ever more revenue. Eventually, the gov ernmental burden exceeds the will ingness of citizens (or subjects) to contribute by the traditional methods of taxation. Given these two facts, the obvious result is disguised taxation ... inflation!

Government Expansion The problem is well illustrated in a study of the growth of public finance in the United States in this century. In 1902, total gov ernment expenditure as a per centage of gross national product was slightly more than 8 per cent.

474 THE FREEMAN August By the mid-1950's the figure was in excess of 30 per cent, and it continues to rise. 2 Traditional forms of direct tax ation such as income taxes, sales taxes, property taxes, poll taxes, excise taxes, gift and inheritance taxes, and tariffs, simply will not be tolerated to finance government operations of this magnitude. We have reached a point where the marginal utility for financing more government ventures di rectly through taxes is no longer acceptable to the political ma jority. While the demand for more gov ernment services continues, the way or will to pay for those serv ices has vanished. A spendthrift government is produc~ng a "tax payer revolt." The stories are legion of pol iticians ;consistently voting for appropriation bills and against revenue bills. Partisan political demands require a responsiveness to the clamor for more government and no taxes. Such demagogy has devastating consequences, yet the impact of such actions is borne not by the demagogue but by the whole of society. Fiscal dishonesty seems to be no barrier to staying in political power.

The point, of course, is that if 2 J. M. Buchanan, The Public Finances (Homewood, Illinois: Richard D. Irwin, Inc.) third edition, p. 46. you cannot get the money by taxes, then print it! When the govern mental burden on a society be comes excessive, inflation is the only politically expedient means remaining for government to fi nance its activities. A Whole New Point of View To seriously believe that infla tion will fade away requires a radi cal departure from current statist trends. It presumes an abandon ment of collectivist ideology and welfare concepts which have now become the "American Way of Life." As long as the state is viewed as "provider," the source of limitless benefits, inflation will be a part of our lives. Yet, there are some who will argue that these errors of under standing can be corrected, and that proper political insight and statesmanship can halt inflation.

But to wage a successful war on inflation requires far more than mere statesmanship. It requires refutation of the theoretical argu ments of the "new" economists who unabashedly declare that in flation (an increase in the quan tity of money) is economically desirable. The fetish is economic growth. The economic community is permeated today with the no tion that money supply increases are fundamental to the growth of the economy.

1971 ROOT OF ALL EVIL 475 Dr. Frederick Hayek has ac l!ur!lt~lY' d~f!.(!rib~d aur Vfoblem as llthe defense of our civilization against intellectual error ."3 Let us realize that people act on what they believe to be true, not what is true. And the fact is that this inflationist doctrine is so firmly imbedded in contemporary eco nomic literature that even many "free market" economists proclaim its validity.4 Monetary Manipulation The almost universal acceptance of the inflationist doctrine has made it the "new" ideology! "But everyone agrees that a rising g.n.p. without an increase in M [moneyJ will tend to raise interest rates and thus limit the growth of g.n.p. Thus, it is important that M [money] grow gradually over the long pull.... "5 To repeat, the ideology is so firmly imbedded that the only controversy concerns when and how much inflation we should havee Whether to stop tampering with the money supply is not even given consideration by the "new"

monetary theorists! 3 What's Past Is Prologue (Irvington, New York: Foundation for Economic Education, 1968), p. 37. 4 See "Downward Price Flexibility and Economic Growth" by Gary North, THE FREEMAN, May, 1971. 5 G. L. Bach, Economics (New York: Prentice-Hall), fifth edition, P. 181. The "new" economist who wish es to manipulate money has failed to grasp its economic function. Since the function of money is in its utility as a medium of ex change, supply changes will affect only the purchasing power of mon ey, and thus only can detract from its original utility.6 Today's monetary theorist, con cerning himself with specialized mathematical equations, apparent ly has no grasp of the historical origins of money. He seems totally unaware that a free market in money evolved out of freely acting individuals exchanging their val ues in an open market. Further, this ancient origin of crude com modity money in the form of gold, silver, and copper was, and is, the base upon which modern money systems are founded.