ABSTRACT
The real risks of government deficits, those connected to inflation is considered in this chapter. This should be enough in itself to show that the government can always arrest any change in the domestic purchasing power of currency, including the prolonged reduction known as inflation, in virtue of the tax burden it imposes upon the users of the currency. Friedrich Hayek argues that price increases not accompanied by an increase in money do not count as inflation. For the government to react to this sort of inflation by raising taxes, or by failing to issue enough money to make it possible for firms to sell everything they produce, for willing workers to be hired, and for debts to be paid down, seems to punish the wrong people. Cartels, monopolies, and trade unions can, for instance, cause inflation by using market power to manipulate prices.
