Liberty Maven

In these dire economic times we keep hearing words like deflation, recession, and inflation among many others. Here is a great explanation of inflation from the Foundation for Economic Education by Beth Hoffman. It is dated 1981, but is still relevant today.

A ten-year-old student’s query to FEE about inflation drew this response from Beth Hoffman in 1981. It captures what so many people saw in her: her dedication to freedom and her eagerness to help others to understand.

Thank you for your letter, asking for information about inflation. The members of the staff here at The Foundation for Economic Education have been studying inflation for many years. We have published books and many articles about the subject. I will share with you some of the things I have learned.

Government causes inflation by printing lots of paper dollars. Many people believe that inflation is high prices. But actually inflation is the increase in the quantity of money. How does this increase lead to high prices?

Well, let’s pretend that you’re not happy with the allowance that your parents give you. You don’t have enough money to buy all the bubble-gum, hamburgers, comics or toys that you want. Let’s also suppose that you had a Magic Machine that could print all the dollars you wanted. (This is called “counterfeiting” and people go to jail for doing this. But just pretend that you could print as much money as you’d like.) Since you would have all the dollars from this Magic Machine you could spend as much as you like and would not have to worry about asking your family for a bigger allowance. When you’re on a limited allowance you have to watch your pennies pretty carefully. But if you had a Magic Machine, you could be less careful with your dollars. You wouldn’t have to choose between a new book and a pad of drawing paper. You could buy both and even more! This would be fine and dandy for a time.  Read the rest….

Also linked from this letter is a very concise one page document written by Henry Hazlit called, “Inflation in One Page“, another excellent resource for those that are too busy to get into the details and just want a “quick” definition.