In 1919, John Maynard Keynes became an international figure of considerable influence because of his book, The Economic Consequences of the Peace. It was a critique of the Versailles Treaty’s imposition of reparations payments on Germany in the aftermath of World War I.
In that book, Keynes made the following observations.
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers’, who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.
This became one of the most widely quoted statements from the book. Yet the book really was not about inflation, Lenin, and the destruction of capitalism. But the quotation was simply too good to resist for defenders of the traditional gold standard.
Beginning in the 1970’s, the authenticity of the quotation from Lenin was called into question by a series of economists and historians. There is no reference to this in Lenin’s collected works. The hostility to the gold standard is so great, that this is one time that Keynes was called into question by his academic acolytes. If it is a question of attacking the gold standard or calling Keynes into question, Keynesians are willing to call Keynes into question. First things first.
Yet it turns out that Keynes was right, and the critics of Keynes on this one particular point have been wrong. Lenin said far more than the brief extract attributed to him by Keynes. Lenin made it very clear why he believed that inflation will ultimately destroy capitalism. He was overseeing the process of this destruction, and his use of paper money was central in his organizational plans. Here is what he said:
(For the rest of my article, click the link.)