Thursday, July 19, 2007

Books of Account
Economics in One Lesson
Henry Hazlitt


What would happen if interest rates were kept artificially low? That’s no different from keeping price below the natural market, says Henry Hazlitt in Economics in One Lesson (http://www.crosswordbookstores.com/ ). Artificial reduction would create economic distortions, with increase in demand and reduced supply. It can encourage highly speculative ventures that cannot continue except under artificial conditions, while on the supply side, low interest rates discourage normal thrift and savings.

“The money rate can, indeed, be kept artificially low only by continuous new injections of currency or bank credit in place of real savings,” cautions the author.
“This can create the illusion of more capital just as the addition of water can create the illusion of more milk. But it is a policy of continuous inflation. It is obviously a process involving cumulative danger…”

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