The Mirage of Inflation
Thy silver is become dross, thy wine mixed with water (Isaiah 1:22).
The prophet Isaiah was publicly criticizing the nation as a whole. He also spelled out the crimes of political rulers. They were bribe-takers. They were companions of thieves (v. 23). They rendered false judgment, cheating widows and orphans (v. 24). But before these crimes, he mentioned monetary debasement: cheap metals mixed in with silver. The word “debase” comes from “base” metals — cheap metals. This was monetary inflation.
Isaiah was making a point. The sins of the nation had debased the nation. The corrupt practice of silver smelters was to mix low-cost metals into the molten silver. This produced bars that looked like pure silver, but were not. This was counterfeit metal. It was deceptive. People in Israel initially thought that the silver bars had high value because of silver’s scarcity, so the smelters continued to deceive the public. More counterfeit silver bars had come into circulation than there would otherwise have been, had smelters not debased the bars.
Isaiah did not say that prices had risen. But his listeners knew. And it was not just the smelters who were doing this. The wine makers were, too. There was larceny in their hearts.
He warned of a coming judgment by God. He used the language of smelting.
Therefore saith the Lord, the LORD of hosts, the mighty One of Israel, Ah, I will ease me of mine adversaries, and avenge me of mine enemies: And I will turn my hand upon thee, and purely purge away thy dross, and take away all thy tin: And I will restore thy judges as at the first, and thy counsellers as at the beginning: afterward thou shalt be called, The city of righteousness, the faithful city (vv. 24-26).
The society was ethically corrupt. The society was ethically counterfeit. But the purging would be real.
The debasement of Isaiah’s day was kids’ stuff compared to today. That was because of the limits of deception. Pour too much dross into the molten metal, and it will no longer look like silver. The modern world has debased its coinage. No nation’s mint issues silver coins as common coinage — only as collectibles. By the mid-1960’s, silver coins were replaced by counterfeits.
In 1965, most money was not coinage, as is true today. Most money was a combination of paper currency and bank checks. Printed currency of any denomination all looked alike. The “dross” was paper and ink, worth a few cents. The “silver” was the face value of the bill. The central bank’s profit — mark-up — on printing these bills was enormous. The governments had laws against printing counterfeit bills, but their central banks printed nothing but counterfeits bills. What held this process in check was the threat that people could bring in their paper money or write checks and get gold coins. That ended in Europe in late 1914: World War I. It ended in the United States in 1933. It ended for silver coins in the United States in 1964. (Note: in the summer of 1963, I converted almost all of my money into silver coins, which I got at a bank at face value. By the end of the summer, these coins started going out of circulation as a result of Gresham’s famous law: “Bad money drives good money out of circulation.”)
Today, most money is digital. All digital money is counterfeit money. We do not even see the money any longer. We use pieces of plastic. Computers communicate with each other.
(For the rest of my chapter, click the link.)