Heat Treat Today publishes eight print magazines a year, and included in each is a letter from the publisher, Doug Glenn. This letter first appeared in Heat Treat Today's November 2021 Vacuum Heat Treating print edition.
Publisher and Founder
Heat Treat Today
“Inflation” is in the news, and it could have a significant impact on the heat treat industry. What is it? Why is it suddenly a problem? How might it impact the heat treat industry? Below are simple answers in layman’s language, but if you want to dig deeper into inflation, let me STRONGLY recommend two books by the late Dr. Hans Sennholz (1922–2007): Age of Inflation (1979, paperbacks selling on Amazon for more than $600.00! – I guess I’m keeping my copy under lock and key!) and Money and Freedom (1985, available free in PDF format found here).
What Is Inflation?
Simply stated, it is an increase in the amount of money in the economy – period. When you “inflate” a balloon, you increase the amount of air inside the balloon. In the same way, monetary inflation is the increase in the amount of money inside the economy. Properly understood, inflation is NOT rising prices; however, rising prices CAN be, and often are, one effect of inflation. The media and much of the general public, including our governing officials, often use “inflation” and “rising prices” synonymously. They are NOT the same thing, and it helps to know the difference if you’re going to have an intelligent conversation with anyone about the topic. Short answer: Inflation is an increase in the amount of money in the economy – period.
Why Is It Suddenly a Problem?
The short answer to that question is also simple. Take a look at the chart which shows two different measures of the amount of money in the economy – M1 and M2. There is no need to define M1 and M2 for the purposes of this column, but suffice it to say that both measure the amount of money in the economy and that M1 is part of M2. Look at the far right-hand side of the chart. See anything unusual?
In 2020, the curves headed for the stars. Notice that the chart starts in 1959. We have NEVER seen this type of inflation (an increase in the money supply) since 1959 and, based on my knowledge, NEVER before in the history of this country. While a general rise in all prices is NOT inflation, one of the main effects of inflation is a general rise in all prices. Not all prices will rise at the same time or at the same rate, but if the money supply is increased (inflation) then there is more money per item to be purchased and over time, people will bid up the price of all goods and services.
Short answer: Rising prices (which is what the media mean when they say inflation”) are suddenly a problem because we are inflating the money supply at an enormous rate never seen in the history of this country; and since there is more money per item to be purchased, it is INEVITABLE that prices will rise.
This economic law is inexorable and unchangeable – much like the law of gravity. At the rate we’re inflating (increasing the money supply) we WILL have rising prices.
How Will Inflation Impact the Heat Treat Industry?
There’s nothing special about the heat treat industry when it comes to inflation (an increase in the money supply) and rising prices (one effect of inflation). Just like every other industry and every other household, manufacturers with their own in-house heat treat departments WILL be hit with increasing prices for nearly all goods and services. These rising prices are the result of the increase in the supply of money in our economy (inflation). There is no predicting how it will hit or how quickly prices will rise or when price increases will stabilize, if ever. But what we can say with certainty is that one cause for rising prices is inflation and we are inflating at rates never seen in the history of this country.
Hans Sennholz’s books, mentioned in the first paragraph of this column, are excellent resources for understanding inflation and the reasons why our rulers, both Republican and Democrat, do not have the courage to stop increasing the money supply. Our Founding Fathers warned us about what they called “fiat” money – paper money not backed by silver or gold. The U.S. Constitution clearly states that only gold and silver should be money, NOT paper (ref: Art.1, Sec. 10, Clause 1). Nonetheless, there have been supposedly “wiser” men who felt that paper money would be a better option. So here we are, inflating at unprecedented rates and bracing ourselves for what could be a very interesting ride.
