With political sewage threatening to reach tsunami force, writing an article on inflation seems like posting a daydream. Yet a better understanding of money would show us how it could shield us from political as well as economic malfeasance.
When we hear inflation discussed it's usually presented as a method of price control. It’s a lever central bank “policymakers" tweak to keep IT from happening, by which I mean the infamous Bernanke IT, i.e. deflation, i.e., a general fall in prices. The Fed and its cheerleaders believe a 2% CPI inflation target (more or less) is perfect for a healthy economy. But horrors — it’s been below 2%! A recent article in the Economist exhorts the Fed to get on the stick and get busying printing (“The only thing we have to fear is fear of inflation").
It has been reckless of the Fed to allow inflation to remain so low for so long. We should be cheering the slight, recent acceleration in prices and hoping for more.
Remember, in the world of Keynesian economics, savings are bad, capital should be free, and in the long run we’re all dead. (See Ray Kurzweil for a rebuttal of this last point. Or see Henry Hazlitt.) In the real world where some people work for a living things are a little different.
First, as its advocates are loath to acknowledge, inflation targeting assumes a currency that, through the coercive mechanism of government, has been taken out of users’s hands, placed in the custody of a banking cartel, and converted to digital fiat money for instant manipulation. We almost never read any hint that money might be otherwise than digits created by a committee of political insiders crafting “policy.” We almost never read that the crafting is indistinguishable from counterfeiting. We almost never read that money developed as a means of overcoming the restrictions of direct exchange, where one commodity emerged as the most sought-after in trade, which was neither digits nor paper. We almost never hear that when paper money becomes money itself it is always a result of government imposition overriding the choice of market participants, i.e., anyone not in on the scheme.
Secondly, far from being reckless, the Fed has actually been careful with money by keeping the adjusted monetary base flat for two years, after sending it to the stratosphere following the Panic of ’08. Combined with the Fed’s policy of paying interest on excess reserves, which by discouraging bank lending helps corral the fractional reserve multiplier, its policy of the past two years has been beneficial to people who want their money to buy more. It really is hard to find a Man on the Street who likes paying higher prices for the things he buys. In the Keynesian world we’re forced to live in, the Man in the Street is swallowed up in the macro analysis that passes for insight.
The real problem with inflation today is not even the money underlying it, which should be gold coins, with its supply governed exclusively by market forces. The problem with inflation is that it is discussed as if the money in our possession — whatever form it takes — is not legally ours.
More important than the survival of the state
Unless you’re at or near the top of the political food chain, nothing you own, including your life, is untouchable by the state or its proxies. How else could Roosevelt have gotten away with his gold confiscation in 1933? How else could Lincoln, Wilson, Roosevelt, and Johnson have ordered men to fight wars the state inaugurated under penalty of fine and imprisonment?
It may surprise some that the idea of state omnipotence was rejected by many men who constituted the vanguard of the country’s founding.
On February 24, 1761 Boston attorney James Otis Jr. took the floor in a landmark court case in which he demolished the arguments of the Crown’s attorney (and Otis’s tutor in the law), Jeremiah Gridley, who had defended the legality of general writs of assistance. As Otis argued, an official armed with one of these general writs could enter “all houses, shops, etc., at will, and command all to assist him” in searching for anything he wanted.
Every man prompted by revenge, ill-humor, or wantonness to inspect the inside of his neighbor's house, may get a Writ of Assistance. Others will ask it from self-defence; one arbitrary exertion will provoke another, until society be involved in tumult and in blood.
A young John Adams was in the courtroom taking notes throughout Otis’s five-hour oration. According to Adams, Otis claimed every man (including “Negroes”) possessed rights that were “inherent, inalienable, and indefeasible by any laws, pacts, contracts, covenants, or stipulations which man could devise.”
Author A. J. Langguth spells this out unequivocally (emphasis mine):
[Otis asserted that] no other creature on earth could legitimately challenge a man’s right to his life, his liberty and his property. That principle, that unalterable law, took precedence . . . even over the survival of the state. [p. 23]
Clearly, the American public was bamboozled into surrendering their rights for the benefit of those who prosper through the instrumentality of the state, which they were assured included them. The Economist and other establishment voices are saying this: That money in your pocket — you don’t really own it, not if the state decides to claim part or all of it. Money has value because it can be used in exchange for other goods. If some committee can reduce the value of your money without your consent, they’re no different than common thieves.
The argument that the Fed’s purpose is to keep market economies running smoothly is a sham by virtue of its history alone, as well as theory. Where central banks go, monetary debauchery follows, as do the ravages of societal turmoil that trail in its wake.