All Commentary
Saturday, January 1, 1977

Inflation vs. Immorality

Henry Hazlitt, noted economist, author, editor, reviewer and columnist, is well known to readers of the New York Times, Newsweek, The Freeman, Barron’s, Human Events and many others. Best known of his books are Economics in One Lesson, The Failure of the “New Economics,” The Foundations of Morality, and What You Should Know About Inflation.

During every great inflation there is a striking decline in both public and private morality. Let us look at two outstanding historic examples.


The first is the French assign at inflation from 1790 to 1796. The moral consequences of this have been vividly depicted by Andrew Dickson White in his little book, Fiat Money Inflation in France, which grew out of a lecture he first delivered in 1876.¹


With prices soaring and the value of money savings rapidly diminishing, an early effect was the obliteration of thrift. Accompanying this was a cancerous increase in speculation and gambling. Stock jobbing became rife. More and more people began to see the advantages of borrowing and later paying off in depreciated money. A great debtor class grew up whose interest was to keep the inflation going. Workers, finding themselves with less and less real pay in terms of what their wages would buy, while others grew rich by gambling, began to lose interest in steady work. The evaporation of the incomes and savings of the lower and middle classes, and the sudden enrichment of speculators, with their ostentatious luxury, led to mounting social resentment and unrest. Cynicism and corruption set in. Even Mirabeau, who only a few months before had risked imprisonment and even death to establish constitutional government, began secretly receiving heavy bribes. The evidence of the general spread of corruption led to widespread distrust and a loss of faith in patriotism or virtue.


The politicians responsible for the inflation sought to throw the blame, then as now, not only on “the speculators” but on the sellers who were forced to raise their prices. One result was that on February 28, 1793, at eight o’clock in the evening, a mob of men and women in disguise began plundering the stores and shops of Paris . At first they demanded only bread; soon they insisted on coffee, rice and sugar; at last they seized everything on which they could lay their hands. Hundreds of places were plundered. This was endured for six hours. Finally order was restored only by a grant of seven million francs to buy off the mob. When the plundered merchants had the temerity to protest at the City Hall of Paris , they were informed that “shopkeepers were only giving back to the people what they had hitherto robbed them of.”


All this was followed by forced loans, price-controls, increased resort to the guillotine, repudiation of the currency, and a final turning to a “man on horseback”—Napoleon.

The German Experience

It is amazing how closely this pattern was followed in the great German hyperinflation of 1920 to 1923. We find the same moral and social retrogression: the discouragement and final obliteration of thrift; the rise in borrowing and prodigal spending; the increase in speculation and gambling; the declining application to steady work; the wanton redistribution of income; the consequent growth of cynicism and corruption, of social unrest, bitterness and hatred, and finally of crime. But the details are worth closer inspection.2


The inflation was an unsettling and revolutionary influence. During most of its course, it lowered the real income of the workers; it impoverished the old middle class of investors, and many of those who had made their fortunes from production; it enriched a new small class of inflation profiteers whose money came from speculation. Under the appearance of feverish activity the country was producing less, and most people were poorer. Goods passed from one speculator to another, through a long chain of middlemen. Some got rich by speculating in foreign exchange; but savings-bank depositors and bondholders were all but wiped out, and even most holders of industrial securities ended with barely a fourth of their original investment. On net balance, in sum, the main profiteers from the inflation were successful speculators rather than producers; this implied an important distinction between the new rich and the old rich.


“It is no exaggeration to state,” writes Bresciani-Turroni, “that the depreciation of the currency caused in Germany the vastest expropriation of some classes of society that has ever been effected in time of peace.” The annihilation of the value of the mark meant the confiscation of the lender’s wealth to the gain of the borrower. Landowners, for example, were thus able to free their lands from mortgage. Owners of houses, of course, were able to do the same; but in their case this advantage was usually more than offset by the decline in real rents, which soon did not cover even maintenance expenses, so that many owners were forced to sell.


Pensioners and others who lived on fixed money incomes were reduced to abject poverty. So, in fact, were most of those in the professional and academic classes: students, tutors, writers, artists, scholars. These and similar changes were reflected in the statistics of the condition of children—malnutrition, underweight, rickets. The general mortality rate from pulmonary tuberculosis greatly increased between 1921 and 1923.


Property rights were in fact, if not in form, obliterated. The “revaluation” decrees of February 1924 and July 1925 made only a paltry fractional restitution, and of course could not undo the millions of personal injustices and deprivations suffered while the inflation was in progress.


It is no coincidence that crime rose sharply during the German inflation. On the basis of 1882=100, the crime rate, which stood at an index number of 117 in 1913, rose to 136 in 1921 and 170 in 1923. It declined again in 1925, when the inflation was over, to 122.


A World-Wide Condition


What shall we say of conditions in nearly every country today? Thanks to Keynesian ideology and spending policies, the universal abandonment of the gold standard, and the workings of the International Monetary Fund, we find inflation practically everywhere; and we find a corresponding social unrest, disorder, and moral decay.


The steadily rising crime in the U.S. is an outstanding example. Between 1960 and 1970 our crime rate per 100,000 population increased an average of 8 per cent per year, and between 1970 and 1973, 4 per cent per year. The total increase between 1960 and 1973 was 120 per cent. But crime increase in the last sixteen years has not been confined to the United States ; it is reported from most other countries.


Another symptom of moral decay is the increasing frequency of scandal and corruption in government circles. One of the saddest illustrations of this is Great Britain , which during most of the nineteenth and early twentieth centuries stood out among nations for the comparative integrity and incorruptibility of its civil servants and political leaders.

Government Sets Example

The chain of causation, from inflation to corruption to crime, is direct. In a free enterprise system, with an honest and stable money, there is dominantly a close link between effort and productivity, on the one hand, and economic reward on the other. Inflation severs this link. Reward comes to depend less and less on effort and production, and more and more on successful gambling and luck. For some, gambling finally comes to seem too chancy, and corruption or crime a surer path to quick reward.


It is not merely that inflation breeds dishonesty in a nation. Inflation is itself a dishonest act on the part of government, and sets the example for private citizens. When modern governments inflate by increasing the paper-money supply, directly or indirectly, they do in principle what kings once did when they clipped the coins. Diluting the money supply with paper is the moral equivalent of diluting the milk supply with water. Notwithstanding all the pious pretenses of governments that inflation is some evil visitation from without, inflation is practically always the result of deliberate governmental policy.


This was recognized by Adam Smith in The Wealth of Nations, in a passage that bears repeating: “When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.”


The pretended payment was effected by inflation. The U.S. government today is paying off in 24-cent dollars the debts it contracted in 1940. Adam Smith went on: “The honor of a state is surely very poorly provided for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.”


¹Published, with an Introduction by the present writer, by The Foundation for Economic Education, 1959.

2For a fuller account, see Costantino Bresciani-Turroni, The Economics of Inflation ( London : George Allen & Unwin, 1937.





  • Henry Hazlitt (1894-1993) was the great economic journalist of the 20th century. He is the author of Economics in One Lesson among 20 other books. See his complete bibliography. He was chief editorial writer for the New York Times, and wrote weekly for Newsweek. He served in an editorial capacity at The Freeman and was a board member of the Foundation for Economic Education.