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Deflation and Liberty
This monograph addresses a critically important the prevailing view that deflation (falling prices and/or falling money stock) is a catastrophe that must be stopped. Jorg Guido Hulsmann shows that deflation is nothing to fear. The government should permit it to happen as a path to economic recovery and even as a tool to reform. Institutions that are liquidated in deflation need to be liquidated, and that includes banks and other financial institutions as well.The essay covers a surprisingly vast theoretical territory in a short space, including the nature of money and interest, the boom and bust, the impossibility of stabilization measures, and the economic trends of the recession. He goes further than any previous writer in arguing that no measures of any kind should be undertaken to cure the bust through money creation, even under conditions of falling prices and falling money stock. His rationale is both economic and political."Deflation is not inherently bad, and that it is therefore far from being obvious that a wise monetary policy should seek to prevent it, or dampen its effects, at any price. Deflation creates a great number of losers, and many of these losers are perfectly innocent people who have just not been wise enough to anticipate the event. But deflation also creates many winners, and it also punishes many "political entrepreneurs" who had thrived on their intimate connections to those who control the production of fiat money."Deflation puts a break--at the very least a temporary break--on the further concentration and consolidation of power in the hands of the federal government and in particular in the executive branch. It dampens the growth of the welfare state, if it does not lead to its outright implosion. In short, deflation is at least potentially a great liberating force. It not only brings the inflated monetary system back to rock bottom, it brings the entire society back in touch with the real world, because it destroys the economic basis of the social engineers, spin doctors, and brain washers."This essay is mind opening in the extreme. Even for those who reject his conclusions, his logic helps the reader break free from prevailing biases in policy culture and conventional economic thinking.
46 pages, Paperback
First published October 1, 2008
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Displaying 1 - 6 of 6 reviews
February 6, 2021
I read this short book with joy, and made notes intensively. I recommend the book to anyone who is looking to understand the money, deflation and growth of societies. This book has been written in 2008.
Two great highlights
"The main engines of the propaganda have been the state universities of the West, as well as an exaggerated faith in the authority of monetary “experts” in the service of the IMF, the World Bank, the Federal Reserve, and other government agencies charged with the technical details of spreading inflation. Is it really necessary to point out the non sequitur implied in granting expert status in matters monetary to the employees of these organizations? An obvious parallel is the case of the economists on the payroll of labor unions who, because “labor” unions pay them, are considered to be experts in labor economics."
"What kind of money would prevail in a free society?
A free society would use precious metals as money. Payments would be made in coins made out of gold, silver, platinum, copper, or whatever other substance would combine scarcity with the physical advantages of these metals."
Because the book has been written on 2008, it suggests as a solution precious metals. Gladly on 2021 there is also digital solution available known as Bitcoin.
Two great highlights
"The main engines of the propaganda have been the state universities of the West, as well as an exaggerated faith in the authority of monetary “experts” in the service of the IMF, the World Bank, the Federal Reserve, and other government agencies charged with the technical details of spreading inflation. Is it really necessary to point out the non sequitur implied in granting expert status in matters monetary to the employees of these organizations? An obvious parallel is the case of the economists on the payroll of labor unions who, because “labor” unions pay them, are considered to be experts in labor economics."
"What kind of money would prevail in a free society?
A free society would use precious metals as money. Payments would be made in coins made out of gold, silver, platinum, copper, or whatever other substance would combine scarcity with the physical advantages of these metals."
Because the book has been written on 2008, it suggests as a solution precious metals. Gladly on 2021 there is also digital solution available known as Bitcoin.
July 25, 2013
Interesting Quote:
"If there is any truth to the socialist caricature of capitalism—an economic system that exploits the poor to the benefit of the rich—then this caricature holds true for a capitalist system strangulated by inflation. The relentless influx of paper money makes the wealthy and powerful richer...than they would be if they depended exclusively on the voluntary support of their fellow citizens."
-Jörg Guido Hülsmann, Deflation and Liberty
"If there is any truth to the socialist caricature of capitalism—an economic system that exploits the poor to the benefit of the rich—then this caricature holds true for a capitalist system strangulated by inflation. The relentless influx of paper money makes the wealthy and powerful richer...than they would be if they depended exclusively on the voluntary support of their fellow citizens."
-Jörg Guido Hülsmann, Deflation and Liberty
January 10, 2022
Inflation harms savers. But deflation harms debtors. A dramatic reduction of the money supply resulting in a dramatic reduction of costs prices and wages means that fixed mortgages are difficult to pay off. This result in many bankruptcies.
The damage done by inflation is unseen. The beneficiaries of it are hard to find. However, the victims of deflation are easy to find. Just look amongst the bankruptcies.
“Deflation is certainly not some sort of reversal of a previous inflation that repairs the harm done in prior redistributions.”
“The point is that any monetary policy has redistributive effect.“
The author is saying that inflationary policies and deflationary policies never benefit the nation as a whole. They are zero some games, benefiting one part of the nation at the expense of some other part of the nation.
“In a truly free society, the production of money is a matter of private initiative. Money is produced and sold just as any other commodity or service.“ “In this means in particular than in a free society the production of money is competitive. It is a matter of mining precious metals and a minting coins, and both mining and minting are subject to the competition emanating from all other market participants.“ In buying factors of production, the money producer competes with the producers of chairs, theater performances, telephones, carpets, cars and so on. In the word, in a free society the production of money is constrained within fairly narrow limits, limits that are determined by the willingness of other members of society to cooperate with our money producer rather than with somebody else.“
“A free society would use precious metals as money. Payments would be made in coins made out of gold, silver, platinum, copper, or whatever other substances would combine scarcity with the physical advantages of these metals.“
“By contrast, paper money has always been fiat money, that is, it has always been imposed by the coercive power of the state. It is not the money of a free market, but the money of a partially enslaved society.“
“The relentless influx of paper money makes the wealthy and powerful richer and more powerful than they would be if they depend exclusively on the voluntary support of their fellow citizens. And because it’s Shield’s political and economic establishment of the country from the competition emanating from the rest of society, inflation puts a break on social mobility. The rich stay rich open parentheses longer) and the poor stay poor (longer) then they would in a free society.”
“It would not be uncharitable to characterize inflation as a large scale ripoff, in favor of the politically well-connected few into the detriment of the politically destitute masses.“
“Rather, deflation appears as a great harbinger of liberty. It stops inflation and destroys the institutions that produce inflation.“ “It is highly significant that the authors of the 1931 McMillan report which analyze the worldwide financial crisis of the time, recognized and emphasized that deflation was foremost a political problem. They clearly saw the deflation brings down the politico-economic establishment.”
This is a very interesting little book. The question I have is did the inflationary policies of the federal government assist in the growth of the US economy over the last 100 years? What would the economy look like had it not done so?
The damage done by inflation is unseen. The beneficiaries of it are hard to find. However, the victims of deflation are easy to find. Just look amongst the bankruptcies.
“Deflation is certainly not some sort of reversal of a previous inflation that repairs the harm done in prior redistributions.”
“The point is that any monetary policy has redistributive effect.“
The author is saying that inflationary policies and deflationary policies never benefit the nation as a whole. They are zero some games, benefiting one part of the nation at the expense of some other part of the nation.
“In a truly free society, the production of money is a matter of private initiative. Money is produced and sold just as any other commodity or service.“ “In this means in particular than in a free society the production of money is competitive. It is a matter of mining precious metals and a minting coins, and both mining and minting are subject to the competition emanating from all other market participants.“ In buying factors of production, the money producer competes with the producers of chairs, theater performances, telephones, carpets, cars and so on. In the word, in a free society the production of money is constrained within fairly narrow limits, limits that are determined by the willingness of other members of society to cooperate with our money producer rather than with somebody else.“
“A free society would use precious metals as money. Payments would be made in coins made out of gold, silver, platinum, copper, or whatever other substances would combine scarcity with the physical advantages of these metals.“
“By contrast, paper money has always been fiat money, that is, it has always been imposed by the coercive power of the state. It is not the money of a free market, but the money of a partially enslaved society.“
“The relentless influx of paper money makes the wealthy and powerful richer and more powerful than they would be if they depend exclusively on the voluntary support of their fellow citizens. And because it’s Shield’s political and economic establishment of the country from the competition emanating from the rest of society, inflation puts a break on social mobility. The rich stay rich open parentheses longer) and the poor stay poor (longer) then they would in a free society.”
“It would not be uncharitable to characterize inflation as a large scale ripoff, in favor of the politically well-connected few into the detriment of the politically destitute masses.“
“Rather, deflation appears as a great harbinger of liberty. It stops inflation and destroys the institutions that produce inflation.“ “It is highly significant that the authors of the 1931 McMillan report which analyze the worldwide financial crisis of the time, recognized and emphasized that deflation was foremost a political problem. They clearly saw the deflation brings down the politico-economic establishment.”
This is a very interesting little book. The question I have is did the inflationary policies of the federal government assist in the growth of the US economy over the last 100 years? What would the economy look like had it not done so?
December 17, 2024
Jorg Guido Hulsmann’s “Deflation and Liberty” argues that deflation is an overly maligned monetary phenomenon. Central banks should allow it to happen as a path to economic recovery and even as a tool to reform. However, Hulsmann warns, “Deflation is certainly not some sort of a reversal of a previous inflation that repairs the harm done in prior redistributions. It brings about a new round of redistribution that adds to the previous round of inflation induced redistribution.”
Institutions that are liquidated in deflation need to be liquidated, and that includes banks and other financial institutions as well. Hulsmann discusses a wide range of monetary conditions with erudition, including the nature of money and interest, business cycles, the impossibility of monetary stabilization, and the economic causes of the recession.
Hulsmann criticizes inflation in the form of fractional-reserve banking and fiat money as pernicious temptations posed to central bankers. As the author notes, “ It bears in itself the germs of its own destruction and, as we shall see, deflation is the essential vehicle of this destruction.”
Inflation is a monetary phenomenon that results in “an unjustifiable redistribution of income in favor of those who receive the new money and money titles first, and to the detriment of those who receive them last. In practice the redistribution always works out in favor of the fiat-money producers themselves and of their partners in the banking sector and at the stock exchange.”
Therefore, deflation can operate as a vehicle of liberty. In short Hulsmann convincingly argues, “It stops inflation and destroys the institutions that produce inflation. It abolishes the advantage that inflation-based debt finance enjoys, at the margin, over savings-based equity finance. And it therefore decentralizes financial decision-making and makes banks, firms, and individuals more prudent and self-reliant than they would have been under inflation.”
An interesting monograph which is well-worth reading.
Institutions that are liquidated in deflation need to be liquidated, and that includes banks and other financial institutions as well. Hulsmann discusses a wide range of monetary conditions with erudition, including the nature of money and interest, business cycles, the impossibility of monetary stabilization, and the economic causes of the recession.
Hulsmann criticizes inflation in the form of fractional-reserve banking and fiat money as pernicious temptations posed to central bankers. As the author notes, “ It bears in itself the germs of its own destruction and, as we shall see, deflation is the essential vehicle of this destruction.”
Inflation is a monetary phenomenon that results in “an unjustifiable redistribution of income in favor of those who receive the new money and money titles first, and to the detriment of those who receive them last. In practice the redistribution always works out in favor of the fiat-money producers themselves and of their partners in the banking sector and at the stock exchange.”
Therefore, deflation can operate as a vehicle of liberty. In short Hulsmann convincingly argues, “It stops inflation and destroys the institutions that produce inflation. It abolishes the advantage that inflation-based debt finance enjoys, at the margin, over savings-based equity finance. And it therefore decentralizes financial decision-making and makes banks, firms, and individuals more prudent and self-reliant than they would have been under inflation.”
An interesting monograph which is well-worth reading.
April 17, 2011
This is a pretty good defense against anti-deflationary (inflationary) policies. I was hoping it would address what would happen in a "deflationary spiral" where deflation leads to currency hoarding and eventually the currency bubble bursting, possibly addressing historical incidences of that type of scenarios (if they exist). I found that while it didn't really address that situation specifically, it did have quite a bit to think about. Hülsmann shows pretty clearly how both inflation and deflation are harmful to certain members of society but in cases of deflation, those who benefit or are harmed are usually more visible while with deflation it's anonymous on both ends.
It's hard in such a short book to counter the thousands of pages of Keynesian economics that encourage inflation, but for what it is, Deflation and Liberty does a pretty good job.
It's hard in such a short book to counter the thousands of pages of Keynesian economics that encourage inflation, but for what it is, Deflation and Liberty does a pretty good job.
July 13, 2016
High 2. As a previous reviewer noted, this sadly does not talk much about what prevents prevents deflationary spirals from going haywire. A tad basic. It also goes after private fractional reserve banking at the end, which I found uncompelling. Other than those points, its an adequate defense/summary of the rothbard/mises influenced anti-inflationist or deflationist position.
Displaying 1 - 6 of 6 reviews