Inflation: of all the dangers to the free market economy, historically and theoretically, the greatest is this one, yet it is one of those subjects that remain wrapped in mystery for the average citizen. This elusive concept must be understood if we are to return to the free market, for without a thorough comprehension of inflation’s mechanism and its dangers, we will continue to enslave ourselves to a principle of theft and destruction.
This essay is an attempt to compare the process of inflation to a more commonly recognized physiological phenomenon, that of drug addiction. The similarities between the two are remarkable, physically and psychologically. Nevertheless, it must be stressed from the outset that any analogy is never a precise scientific explanation. No analogy can claim to be so rigorously exact as to rival the accuracy of the original concept to which it is supposed to be analogous. It is, however, an excellent teaching device, and while it is no substitute for carefully reasoned economic analysis, it is still a surprisingly useful supplement, which can aid an individual in grasping the implications of the economic argument.
Before beginning the comparison, it is mandatory that a definition of inflation be presented, one which can serve as a working basis for the development of the analogy.
One workable definition has been offered by Murray N. Rothbard, who is perhaps the most reliable expert on monetary theory: inflation is “any increase in the economy’s supply of money, not consisting of an increase in the stock of the money metal.” An even better definition might be this one, adopted for the purposes of exposition in this study: “any increase in the economy’s supply of money, period.” Thus, the level of prices is not the criterion in determining whether or not inflation is present. The only relevant factor is simply whether any new money is being injected into the system, be it gold, silver, credit, or paper.
(For the rest of my article, click the link.)
I personally believe that we need a long period of disinflation, as they called it during the Regan years. That is actually deflation, but we don't need a great huge crash, like we are headding for now. With a long slow deflation, people would tend to keep their current pay but their money would keep being worth more and more so they would keep getting more ane more buying power. The Government would benefit as well from this, but the DC morons just want to have more and more inflation so that as people's pay increases and their buying power decreases, and the Government will be able to steal more and more from them due to their getting into highet tax brackets. It seems like in many instances what the people need is the opposite of what the Government wants. That tells me that we need to have a lot less Government, which I have known for a long time, and you folks have too.
This topic has had me concerned for several years The current administration particularly has been printing fiat currency, spending beyond its means, borrowing from countries that are not friendly, wasting money on crony capitalism projects and bridges to nowhere, etc. You only need to look at history to see the consequence of such irresponsibility. The German Weimar Republic did many of the same blunders we are currently doing. The result was that inflation became so abhorrent that ONE U.S. dollar was worth 4 trillion Deutschemarks. In Peron's Argentina inflation became so bad that the country had a depression that many say was worse than our own great depression. Then you could consider Napoleon's France, Robert Mogabe's Rwanda, Greece, Italy,Spain moder France,etc. I sincerely hope the folks in power wise up before we learn our own harsh history lesson.
obama plans to ask for another trillion dollars to keep the govt operating or he will shut down the govt again as he did last fall.. he will not negotiate–is not that his job? to negotiate with both sides.. we can see that he has an addictive personality–drug user, smoker and he uses the best alcohol on the taxpayers dime aT THE WHITEHOUSE. HE COMES BY IT NATURALLY–HIS FATHER AND HIS MATERNAL GRANDFATHER WERE BOTH ALCOHOLICS.. TO HIM SPENDING IS JUST ANOTHER ADDICTION–HE HAS ALREADY SURPASSED ALL OF THE PAST PRESIDENTS SINCE 1776. THE COST TO KEEP HIM IN THE WHITEHOUSE EXCEEDS TYE COMBINED COSTS OF SUPPORTING ALL OF THE ROYALTY IN THE REST OF THE WORLD. OBAMACARE ALONE IS APPEARING TO BE INFINITELY COSTLY AND IS SO COSTLY MOST FOLKS CANNOT AFFORD IT AND WILL PAY THE PENALTY AND SELF INSURE. OBAMACARE IS LIKE A WET BLANKET ON THE ECONOMY WHICH IS VERY FRAGILE. HIS MINIONS HAVE SUPRESSED THE NORMAL RATES OF RETURN TO INVESTORS WHICH IS VERY CRUEL TO THE RETIRED WHO LIVE OFF OF THEIR SAVINGS. AS THE GOVT CAN FIND LESS TO TAX–THEY WILL NATIONALIZE OUR PENSIONS.. AS BERNAKE KEEPS PRINTING TREASURIES– THE BANKS THAT OBAMA DID NOT WANT TO FAIL ARE COLLECTING INTEREST ON THESE TREASURIES. WHY DID THE GEN MTRS AND CHRYSLER BONDHOLDERS NOT GET THE SAME TREATMENT FROM THE FEDERAL RESERVE? OBAMA JUST STOLE THOSE BONDS FROM THE BONDHOLDERS MOST OF WHOM WERE PENSION FUNDS AND SAVINGS OF THE RETIRED. THIS WILL NOT END WELL–HYPERINFLATION SUCH AS IN PRE-WWII CAN BE EXPECTED.. OBAMA HAS BEEN THE RUINATION OF THIS GREAT REPUBLIC
Inflation has always been the easy way out for governments. It's been so since ancient Rome. More currency chasing fewer goods drives up prices (more sales tax revenue for governments). It also pushes people into higher tax brackets, so Congress doesn't have to raise taxes and risk a backlash at the voting booth.
I read the whole article. There is much with which I disagree. But the big problem that I see, is the idea of returning to a metal standard. The government has produced billions of dollars for QE. This creates enormous inflationary pressure. They are tamping that down through control of interest rates. Meanwhile, we are losing people from the work force, the quality of jobs is decreasing, and QE is inflating the stock market. In other words, we are sitting on a financial bomb. That must be defused first if it can be. If the government ever tried to return to a metals based economy, with their nature for corruption, I believe they would destroy the financial security of most Americans. As the commercial says, "these are troubling times in the kingdom". I fear for my grandkids! See my blog at http://cranky-conservative.blogspot.com
The government has no place in deciding what money is. The same is true whether we are talking about gold, silver, or lamborghinis. The government is slightly under better control under a gold standard, but it is not the thing we should be working to achieve.
Remove any legal tender laws. Eliminate capital gains taxes. Allow the market to choose what money is.
This is an excellent little treatise. Amazing that it was written in the still-halcyon days of 1965!
We're told that the dollar buys 4% of what it would buy in 1913, when the Fed Reserve was created (as an engine of inflation). It has fulfilled its purpose magnificently. So basically, 96% of the value of the dollar has been stolen by government from producers over the years.
You make the point that in a free-market economy, prices should fall (given a fixed supply of money). Good point. I would then point to all the efficiencies and economies of production that have come into being since 1913. What would prices be by now in a free-market situation, compared to 1913, given all these advances? I have no idea, but I think maybe 1/3 of 1913 prices might be a fair guess. Q: What happened to all that increase in the purchasing power of money? A: It was stolen, too. Case in point: the 1920's. Prices were relatively stable despite a huge increase in circulating media, since production increased so much. The '20s should have been even much more prosperous than they were–a good, healthy prosperity, not a phony one.
I have in my possession a coin from Turkey which I picked up on a 2002 visit. It's 100,000 Turkish lira, and is the smallest denomination I saw while I was there. You could buy practically nothing with it. The Turkish government took the expedient of knocking about 6 or 7 zeros off their currency, and then continuing on their merry inflationary way. I'll bet only a handful of Turks among 50 million know what's going on.
Keynes' famous "rebuttal" to the question of what happens in the long run under his proposed policies was, "In the long run we are all dead". Not all of us, John Maynard. Not all of us. Some of us are going to live forever. I would've loved to have been in that room that day and drilled him with that answer. Of course, his response would have been either rage or laughter, as is the usual response of a fool. (Prov. 29:9)
All I can say is YES! a resounding YES!
Appreciate your "thumbs-down" on my comment, Shane. I'll wear it with pride.
In 2008 I became totally disabled due to a back injury. Fortunately, I had disability insurance. In 5 years we have gone from living pretty well to beginning to make real choices of how to spend our money! It's not from living extravagantly, but from inflation. Soon I foresee cutting our standard of living just to pay for the essentials! I buy the groceries and it's unbelievable how inflation has hit the grocery stores!