What Causes Inflation? An Economic Outlook

This economic outlook focuses on what causes inflation including price controls, and how the American press has a duty to report it.

| July/August 1979

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    This economic outlook focuses on what causes inflation including price controls and taxes.

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Every business has its hazards. People in the news business complain that one of their own special hazards is taking the blame for all the bad news in the world. And since much of the bad news nowadays frequently has something to do with governments, governments especially are often angry at the press. In fact, there are about 90 countries in the world today whose leaders object to bad news so much that they have abolished the free press. They operate on the theory that if bad news is not reported, it doesn't exist.  

Editors and publishers in countries where the press remains free recognize this attitude for the threat that it is. They combat it constantly by defending their right to publish the news as they see it, and also by reminding the public that the First Amendment is the very linchpin of our liberty.  

To get blamed for acts you do not commit, or for the bad news created by somebody else, is a hazard that is not unique to the news business. It happens to bankers, businessmen, labor leaders, and almost anyone else involved in handling money. And we in the business community are being treated to an especially strong dose of this misdirected anger right now.  

The bad news that business has been reporting is inflation. The price of everything is going up, which is another way of saying that the value of our money is going down. Since only the government prints money, it does not like people being told that the value of its product is deteriorating. So we find government spokesmen traveling around the country telling people that the real villains in this inflation story are business men who are raising their prices or labor unions which are raising wages.  

Suppressing the Bad News: What Causes Inflation

But rising prices do not cause inflation, they report it. When a government — any government — starts trying to eliminate inflation by controlling wages and pries, what it is really doing is asking all of us to suppress the bad news that it has printed too much money. The way to stop the bad news about the deteriorating value of our money, according to government, is to conceal it from the people by freezing wages and prices.


Prices and wages represent an essential form of economic speech: Money is just another form of information. When the freedom of this economic speech is restricted, we are all not only penalized, we are misled. In Governor of the Federal Reserve (1974-1986) Henry Wallich's words: "inflation is like a country where nobody speaks the truth."  

Prices enable consumers to communicate with producers and tell them what they want or don't want. If prices are censored, or frozen, they cannot tell producers what goods or services people want or don't want to purchase. Examples abound.  

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