Walter E. Williams

With the massive increases in federal spending, inflation is one of the risks that awaits us. To protect us from the political demagoguery that will accompany that inflation, let's now decide what is and what is not inflation. One price or several prices rising is not inflation. Increases in money supply are what constitute inflation, and a general rise in prices is the symptom. As the late Nobel Laureate Professor Milton Friedman said, "(I)nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."

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Thinking of inflation as rising prices permits politicians to deceive us and escape culpability. They shift the blame saying that inflation is caused by greedy businessmen, rapacious unions or Arab sheiks. Instead, it is increases in the money supply that cause inflation, and who is in charge of the money supply? It's the government operating through the Federal Reserve Bank and the U.S. Treasury.

Our nation has avoided the devastating hyperinflations that have plagued other nations. The world's highest inflation rate was in Hungary after World War II, where prices doubled every 15 hours. The world's second highest inflation rate is today's Zimbabwe, where last year prices doubled every 25 hours, a rate of 89 sextillion percent. That's 89 followed by 23 zeros. Our highest rate of inflation occurred during the Revolutionary War, when the Continental Congress churned out paper Continentals to pay bills. The monthly inflation rate reached a peak of 47 percent in November 1779. This painful experience with inflation, and collapse of the Continental dollar, is what prompted the delegates to the Constitutional Convention to include the gold and silver clause into the United States Constitution so that the individual states could not issue bills of credit. The U.S. Constitution's Article I, Section 8 permits Congress: "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."


Walter E. Williams

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of 'Race and Economics: How Much Can Be Blamed on Discrimination?' and 'Up from the Projects: An Autobiography.'
 
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