Part 8 (2/2)

The 1946 edition explained the consequences of inflation, but the inflation then was coovernment expenditures in 1926 had been less than 3 billion and there was a surplus, by fiscal year 1946 expenditures had risen to 55 billion and there was a deficit of 16 billion Yet in fiscal year 1947, with the war ended, expenditures fell to 35 billion and there was an actual surplus of nearly 4 billion By fiscal year 1978, however, expenditures had soared to 451 billion and the deficit to 49 billion in fiscal year 1947, with the war ended, expenditures fell to 35 billion and there was an actual surplus of nearly 4 billion By fiscal year 1978, however, expenditures had soared to 451 billion and the deficit to 49 billion

All this has been accompanied by an enormous increase in the stock of money-from 113 billion of demand deposits plus currency outside of banks in 1947, to 357 billion in August 1978 In other words, the active money supply has been more than tripled in the period

The effect of this increase in money has been a dramatic increase in prices The consumer price index in 1946 stood at 585 In September 1978 it was 1993 Prices, in short, more than tripled

The policy of inflation, as I have said, is partly imposed for its own sake More than forty years after the publication of John Maynard Keynes' General Theory General Theory, and hly discredited by analysis and experience, a great nuune these recoovern a deficit for forty-one out of the last forty-eight years and when that deficit has been reaching direater irony is that, not satisfied with following such disastrous policies at ho other countries, notably Ger these ”expansionary” policies the so ed all his fellow foxes to cut off theirs

One of the worst results of the retention of the Keynesian reater inflation, but that it systematically diverts attention from the real causes of our unee laws, excessive and prolonged uneenerous relief payh in part often deliberate, is today overnment economic interventions It is the consequence, in brief, of the Redistributive State-of all the policies of expropriating money from Peter in order to lavish it on Paul overnment economic interventions It is the consequence, in brief, of the Redistributive State-of all the policies of expropriating money from Peter in order to lavish it on Paul

This process would be easier to trace, and its ruinous effects easier to expose, if it were all done in souaranteed annual income actually proposed and seriously considered by coress in the early 1970s This was a proposal to tax still e and turn the proceeds over to all those living below a so-called uarantee the to work or not-”to enable theine a plan e work and production and eventually to i any such single overnment has preferred to enact a hundred laws that effect such a redistribution on a partial and selective basis These roups entirely; but on the other hand they roups a dozen different varieties of benefits, subsidies, and other handouts These include, to give a random list: Social Security, Medicare, Medicaid, unemployment insurance, food sta, rent subsidies, school lunches, public employment on make-work jobs, Aid to Families with Dependent Children, and direct relief of all kinds, including aid to the aged, the blind, and the disabled The federal governories it has been handing federal aid benefits to more than 4 million people-not to count what the states and cities are doing

One author has recently counted and exarams Government expenditures for these in 1976 totaled 187 billion The corams between 1971 and 1976 was 25 percent a year-25 tiross national product for the same period Projected expenditures for 1979 are rowth of these welfare expenditures has been the development of a ”national welfare industry,” now co payments and services to 50 million beneficiaries for 1979 are rowth of these welfare expenditures has been the development of a ”national welfare industry,” now co payments and services to 50 million beneficiaries1 Nearly every other Western country has been adh sorated and less haphazard collection And in order to do this they have been resorting to more and more Draconian taxation

We need overn personal income from work (”earned” income) up to 83 percent, and personal income from investment (”unearned” inco that it has discouraged work and invested production and employment? There is no more certain way to deter employment than to harass and penalize ees low than to destroy every incentive to investment in new andovernments everywhere

Yet this Draconian taxation has not brought revenues to keep pace with everand sche chronic and growing govern inflation, in nearly every country in the world

For the last thirty years or so, Citibank of New York has been keeping a record of this inflation over ten-year periods Its calculations are based on the cost-of-living estiovernments themselves In its economic letter of October 1977 it published a survey of inflation in fifty countries These figures show that in 1976, for example, the West German mark, with the best record, had lost 35 percent of its purchasing power over the preceding ten years; that the Swiss franc had lost 40 percent, the American dollar 43 percent, the French franc 50 percent, the japanese yen 57 percent, the Swedish krone 47 percent, the Italian lira 56 percent, and the British pound 61 percent When we get to Latin America, the Brazilian cruzeiro had lost 89 percent of its value, and the Uruguayan, Chilean, and Argentine pesosten years; that the Swiss franc had lost 40 percent, the American dollar 43 percent, the French franc 50 percent, the japanese yen 57 percent, the Swedish krone 47 percent, the Italian lira 56 percent, and the British pound 61 percent When we get to Latin America, the Brazilian cruzeiro had lost 89 percent of its value, and the Uruguayan, Chilean, and Argentine pesos h when compared with the record of a year or two before, the overall record of world currency depreciations wasat an annual rate of 6 percent, the French franc of 86 percent, the japanese yen of 91 percent, the Swedish krone of 95 percent, the British pound of 145 percent, the Italian lira of 157 percent, and the Spanish peseta at an annual rate of 175 percent As for Latin American experience, the Brazilian currency unit in 1977 was depreciating at an annual annual rate of 308 percent, the Uruguayan of 355, the Chilean of 539, and the Argentinian of 657 rate of 308 percent, the Uruguayan of 355, the Chilean of 539, and the Argentinian of 657

I leave it to the reader to picture the chaos that these rates of depreciation ofin the econo in the lives of millions of their inhabitants

As I have pointed out, these inflations, themselves the cause of so e part the consequence of other policies of government economic intervention Practically all these interventions unintentionally illustrate and underline the basic lesson of this book All were enacted on the assumption that they would confer soroup Those who enacted them failed to take heed of their secondary consequences-failed to consider what their effect would be in the long run on all groups

In sum, so far as the politicians are concerned, the lesson that this book tried to instill o does not seeh the chapters of this book seriatiovernment intervention deprecated in the first edition that is not still being pursued, usually with increased obstinacy Govern to cure by public works the uneht about by their own policies They are i heavier and more ex-propriatory taxes than ever They still recommend credit expansion Most of theoal They continue to impose import quotas and protective tariffs They try to increase exports by depreciating their currencies even further Far” for ”parity prices” Governements to unprofitable industries They still make efforts to ”stabilize” special coovernment intervention deprecated in the first edition that is not still being pursued, usually with increased obstinacy Govern to cure by public works the uneht about by their own policies They are i heavier and more ex-propriatory taxes than ever They still recommend credit expansion Most of theoal They continue to impose import quotas and protective tariffs They try to increase exports by depreciating their currencies even further Far” for ”parity prices” Governements to unprofitable industries They still make efforts to ”stabilize” special co up co their currencies, continue to blaher prices on private producers, sellers, and ”profiteers” They ie new exploration precisely when it is in e fixing or ”” They continue rent control in the face of the obvious devastation it has caused They not only retaintheir level, in face of the chronic une about They continue to pass laws granting special privileges and ie workers to beco and other forain collectively in good faith” with such unions-ie, to make at least some concessions to their demands The intention of all these measures is to ”help labor” But the result is onceunee payht have been

Most politicians continue to ignore the necessity of profits, to overestie or total net amount, to denounce unusual profits anywhere, to tax them excessively, and sometimes even to deplore the very existence of profits

The anticapitalistic mentality seems more deeply embedded than ever Whenever there is any slon in business, the politicians now see the ” At the sa they pile up further disincentives and penalties in the way of saving and invest this today, as we have already seen, is to embark on or accelerate inflation The result is that today, for the first time in history, no nation is on aits own people by printing a chronically depreciating paper currency spending” At the sa they pile up further disincentives and penalties in the way of saving and invest this today, as we have already seen, is to embark on or accelerate inflation The result is that today, for the first time in history, no nation is on aits own people by printing a chronically depreciating paper currency

To pile one more item on this heap, let us examine the recent tendency, not only in the United States but abroad, for alet colanced at the overall picture, but let us now lookexainal federal Social Security Act was passed in 1935 The theory behind it was that the greater part of the relief proble years, and so, when they were too old to work, they found themselves without resources This probleht, if they were compelled to insure themselves, with employers also compelled to contribute half the necessary premiums, so that they would have a pension sufficient to retire on at age sixty-five or over Social Security was to be entirely a self-financed insurance plan based on strict actuarial principles A reserve fund was to be set up sufficient to meet future claims and payments as they fell due

It never worked out that way The reserve fund existed overnment spent the Social Security tax receipts, as they came in, either to meet its ordinary expenses or to pay out benefits Since 1975, current benefit payments have exceeded the system's tax receipts

It also turned out that in practically every session Congress found ways to increase the benefits paid, broaden the coverage, and add new forms of ”social insurance” As one commentator pointed out in 1965, a feeeks after Medicare insurance was added: ”Social Security sweeteners have been enacted in each of the past seven general election years”

As inflation developed and progressed, Social Security benefits were increased not only in proportion, but much more The typical political ploy was to load up benefits in the present and push costs into the future Yet that future always arrived; and each few years later Congress would again have to increase payroll taxes levied on both workers and employers benefits were increased not only in proportion, but much more The typical political ploy was to load up benefits in the present and push costs into the future Yet that future always arrived; and each few years later Congress would again have to increase payroll taxes levied on both workers and employers

Not only were the tax rates continuously increased, but there was a constant rise in the ainal 1935 bill the salary taxed was only the first 3,000 The early tax rates were very low But between 1965 and 1977, for example, the Social Security tax shot up from 44 percent on the first 6,600 of earned income (levied on employer and employee alike) to a combined 117 percent on the first 16,500 (Between 1960 and 1977, the total annual tax increased by 572 percent, or about 12 percent a year co of 1977, unfunded liabilities of the Social Security system were officially estimated at 41 trillion trillion

No one can say today whether Social Security is really an insurance program or just a complicated and lopsided relief syste assured that they ”earned” and ”paid for” their benefits Yet no private insurance co benefit scales out of the ”premiums” actually received As of early 1978, when low-paid workers retire, their enerally represent about 60 percent of what they earned on the job Middle-income workers receive about 45 percent For those with exceptionally high salaries, the ratio can fall to 5 or 10 percent If Social Security is thought of as a relief systee one, for those who have already been getting the highest salaries receive the highest dollar benefits

Yet Social Security today is still sacrosanct It is considered political suicide for any congress back not only present but promised future benefits The Ahtening symbol of the almost inevitable tendency of any national relief, redistribution, or ”insurance” scheme, once established, to run completely out of control

In brief, the main problem we face today is not econoreeovernment attempts to redistribute wealth and incoeneral iovernment to create and enforce a framework of law that prohibits force and fraud But it must refrain from specific economic interventions Governe and preserve a free enes and asked whether he could do anything for hienes is said to have replied: ”Yes, stand a little less between me and the sun” It is what every citizen is entitled to ask of his government

The outlook is dark, but it is not entirely without hope Here and there one can detect a break in the clouds More andto give the it away from somebody else-or froroups mean merely increased taxes, or increased deficits and increased inflation And inflation, in the end, anizes production Even a few politicians are beginning to recognize this, and some of them even to state it clearly

In addition, there are ns of a shi+ft in the intellectual winds of doctrine Keynesians and New Dealers seem to be in a slow retreat Conservatives, libertarians, and other defenders of free enterprise are beco more outspoken andthe young, there is a rapid growth of a disciplined school of ”Austrian” economists

There is a real proe fro measures and trends has become irreparable

1Charles D Hobbs, The Welfare Industry The Welfare Industry Washi+ngton, DC: Heritage Foundation, 1978) Washi+ngton, DC: Heritage Foundation, 1978)

A NOTE ON B BOOKS

THOSE WHO DESIRE to read further in econoth and difficulty I know of no single volume in print today that coether supply it There is an excellent short book (126 pages) by Faustino Ballve, to read further in econoth and difficulty I know of no single volume in print today that coether supply it There is an excellent short book (126 pages) by Faustino Ballve, Essentials of Econoton-on-Hudson, NY: Foundation for Economic Education), which briefly summarizes principles and policies A book that does that at soton-on-Hudson, NY: Foundation for Economic Education), which briefly summarizes principles and policies A book that does that at so the Dollar Crisis Understanding the Dollar Crisis by Percy L Greaves (Belmont, Mass: Western Islands, 1973) Bettina Bien Greaves has asses on by Percy L Greaves (Belmont, Mass: Western Islands, 1973) Bettina Bien Greaves has asses on Free Market Economics Free Market Economics (Foundation for Economic Education) (Foundation for Econoh understanding, and feels prepared for it, should next read Huo: Contees) This book extended the logical unity and precision of economics beyond that of any previous work A two-volu von Mises (Chicago: Contees) This book extended the logical unity and precision of economics beyond that of any previous work A two-volume ritten thirteen years after Human Action Human Action by a student of Mises is Murray N by a student of Mises is Murray N Rothbard's Rothbard's Man, Economy, and State Man, Economy, and State (Mission, Kan: Sheed, Andrews and McMeel, 1962, 987 pages) This containsement makes it (Mission, Kan: Sheed, Andrews and McMeel, 1962, 987 pages) This containsement makes it in soreat work in soreat work

Short books that discuss special econo for Freedo von Mises (South Holland, 111: Libertarian Press, 1952), and by Ludwig von Mises (South Holland, 111: Libertarian Press, 1952), and Capitalism and Freedoo: University of Chicago Press, 1962) There is an excellent pao: University of Chicago Press, 1962) There is an excellent pamphlet by Murray N Rothbard, What Has Government Done to Our Money? What Has Governe, 1964, 1974, 62 pages) On the urgent subject of inflation, a book by the present author has recently been published, (Santa Ana, Calif: Raent subject of inflation, a book by the present author has recently been published, The Inflation Crisis, and How to Resolve It The Inflation Crisis, and How to Resolve It (New Rochelle, NY: Arlington House, 1978) (New Rochelle, NY: Arlington House, 1978)

Aies and developments from a point of view similar to that of this volume are the present author's The Failure of the ”New Economics”: An analysis of the Keynesian Fallacies The Failure of the ”New Econoton House, 1959); F A Hayek, (Arlington House, 1959); F A Hayek, The Road to Serfdom The Road to Serfdom (1945) and the same author's monumental (1945) and the same author's monumental Constitution of Liberty Constitution of Liberty (Chicago: University of Chicago Press, 1960) Ludwig von Mises' (Chicago: University of Chicago Press, 1960) Ludwig von Mises' Socialisical analysis Socialisical analysis (London: Jonathan Cape, 1936, 1969) is thecritique of collectivistic doctrines ever written (London: Jonathan Cape, 1936, 1969) is thecritique of collectivistic doctrines ever written

The reader should not overlook, of course, Frederic Bastiat's Economic Sophisms Economic Sophisms (ca 1844), and particularly his essay on ”What Is Seen and What Is Not Seen” (ca 1844), and particularly his essay on ”What Is Seen and What Is Not Seen”

Those who are interested in working through the econoht find it most profitable to do this in the reverse of their historical order Presented in this order, the chief works to be consulted, with the dates of their first editions, are: Philip Wicksteed, The Common Sense of Political Economy The Common Sense of Political Economy, 1911; John Bates Clark, The Distribution of Wealth The Distribution of Wealth, 1899; Eugen von Bohm-Bawerk, The Positive Theory of Capital The Positive Theory of Capital, 1888; Karl Menger, Principles of Economics Principles of Economics, 1871; W Stanley Jevons, The Theory of Political Economy The Theory of Political Economy, 1871; John Stuart Mill, Principles of Political Economy Principles of Political Economy, 1848; David Ricardo, Principles of Political Economy and Taxation Principles of Political Economy and Taxation, 1817; and Adam Smith, The Wealth of Nations The Wealth of Nations, 1776

Economics broadens out in a hundred directions Whole libraries have been written on specialized fields alone, such as e, taxation and public finance, governes and labor relations, interest and capital, agricultural economics, rent, prices, profits, markets, competition and monopoly, value and utility, statistics, business cycles, wealth and poverty, social insurance, housing, public utilities, mathematical economics, studies of special industries and of economic history But no one will ever properly understand any of these specialized fields unless he has first of all acquired a firrasp of basic economic principles and the complex interrelationshi+p of all econo in general econoht books in his special field of interest