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Economics in One Lesson
wealth. “That wealth consists in money, or in gold and silver,” wrote
Adam Smith nearly two centuries ago,
is a popular notion which naturally arises from the dou-
ble function of money, as the instrument of commerce,
and as the measure of value. . . . To grow rich is to get
money; and wealth and money, in short, are, in
common
language, considered as in every respect synonymous.
Real wealth, of course, consists in what is produced and con-
sumed: the food we eat, the clothes we wear, the houses we live in.
It is railways and roads and motor cars; ships and planes and facto-
ries; schools and churches and theaters; pianos, paintings, and
books. Yet so powerful is the verbal ambiguity that confuses money
with wealth, that even those who at times recognize the confusion
will slide back into it in the course of their reasoning. Each man
sees that if he personally had
more money he could buy more
things from others. If he had twice as much money he could buy
twice as many things; if he had three times as much money he
would be “worth” three times as much. And to many the conclu-
sion seems obvious that if the government merely issued more
money and distributed it to everybody, we should all be that much
richer.
These are the most naive inflationists. There is a second group,
less naive, who see that if the whole thing
were as easy as that the
government could solve all our problems merely by printing money.
They sense that there must be a catch somewhere; so they would
limit in some way the amount of additional money they would have
the government issue. They would have it print just enough to make
up some alleged “deficiency” or “gap.”
Purchasing power is chronically deficient, they think, because
industry somehow does not distribute enough money to producers to
enable them to buy back, as consumers, the product that is made.
There is a mysterious “leak” somewhere. One group “proves” it by
equations. On one side of their equations
they count an item only
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The Mirage of Inflation
147
once; on the other side they unknowingly count the same item several
times over. This produces an alarming gap between what they call “A
payments” and what they call “A+B payments.” So they found a
movement, put on green uniforms, and insist that the government
issue money or “credits” to make good the missing B payments.
The cruder apostles of “social credit” may seem ridiculous; but
there are an indefinite number of schools of only slightly more
sophisticated inflationists who have “scientific” plans to issue just
enough additional money or credit to fill some
alleged chronic or peri-
odic “deficiency” or “gap” which they calculate in some other way.
2
The more knowing inflationists recognize that any substantial
increase in the quantity of money will reduce the purchasing power
of each individual monetary unit—in other words, that it will lead to
an increase in commodity prices. But this does not disturb them. On
the contrary, it is precisely why they want the inflation. Some of them
argue that this result will improve the position of poor debtors as
compared with rich creditors. Others think it will stimulate exports
and discourage imports. Still others think it
is an essential measure to
cure a depression, to “start industry going again,” and to achieve “full
employment.”
There are innumerable theories concerning the way in which
increased quantities of money (including bank credit) affect prices.
On the one hand, as we have just seen, are those who imagine that
the quantity of money could be increased by almost any amount
without affecting prices. They merely see this increased money as a
means of increasing everyone’s “purchasing power,” in
the sense of
enabling everybody to buy more goods than before. Either they
never stop to remind themselves that people collectively cannot buy
twice as much goods as before unless twice as much goods are pro-
duced, or they imagine that the only thing that holds down an indef-
inite increase in production is not a shortage of manpower, working
hours or productive capacity, but merely a shortage of monetary
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