Inflation and Its Effect

Inflation has a huge effect on a country's economy. As a result, it is critical to comprehend the broad implications of inflation. However, before delving into its implications, it is necessary to consider that inflation has occurred since time immemorial (Hazlitt 146). Most of the causes for this is the conflation of money and riches. Some people have a distorted view of wealth and they believe that as more money is printed, they will be able to afford more items and therefore become wealthier. These individuals are referred to as inflationists by Henry (Hazlitt 147). Real wealth, according to him, encompasses both what is consumed and what is made. Inflationist fails to understand that increase in money will lead to increased commodity prices due to reduced purchasing power (Hazlitt 149). Many theories exist about the effect increased amounts of money can have the purchasing power. Some theories note that increased amounts of money will improve the conditions of poor debtors. Another group which even includes rising economists hold mechanical theory (Hazlitt 150). According to the theory, money offered multiplied by the velocity of circulation must always be equal to the quantity of goods being bought. Inflation may positively affect a certain group while negatively affecting the other.

Inflation brings disastrous consequences to the community in the long run. Some of the effects of inflation include Destruction of production structure, negatively affecting some industries and also makes the value of money uncontrollable (Hazlitt 151).

Questions

What does real wealth consist of?

According to Henry real wealth consists of what is produced and consumed for instance Food, clothes, houses, roads, Railways, motors, ships and other physical products.

What are some of the consequences of inflation?

Inflation has both positive and negative consequences on the society. It may benefit some groups at the expense of others. Inflation, however, has negative consequences in the long run. It destroys production structure, negatively affects some organizations and makes it impossible to control money value.

Work Cited

Hazlitt, Henry. Economics in One Lesson : The Shortest and Surest Way to Understand Basic Economics. Crown Business, 2010. EBSCOhost,