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Back in the 1970s, the New York congressman and later vice-presidential nominee Jack Kemp was a fierce critic of President Jimmy Carter’s policies that produced soaring prices. Kemp said that the Carter administration was so clueless that its officials apparently thought “inflation was caused by many, many, different things, all of which are acting and interacting in strange and mysterious ways.”
Carter and his minions pointed fingers at oil sheikhs, credit cards, store clerks, etc. Joe Biden’s list of inflation causers is just as tedious and laughable: Putin, oil companies, price gougers, Republicans, and the failure of Congress to pass all his monstrous, inflationary spending bills. The objective is the same: to coax you to look in all the wrong places as their policies bite you in the rear end.
If St. Patrick really drove the snakes out of Ireland, we should make him President so he can do the same thing in Washington.
Economists Ludwig von Mises and Milton Friedman, though they certainly had their differences, offered much wiser observations about inflation. Mises defined it as “an increase in the quantity of money without a corresponding increase in the demand for money, i.e., for cash holdings.” Friedman said it was “always and everywhere a monetary phenomenon.”
Think of it this way: Whoever is in charge of money and credit (the government and the banking system it orchestrates) expands the supply. Interest rates fall at first and an economic bubble begins. If the expansion of money and credit is big enough, and goes on long enough, then prices in the economy will eventually rise. Rising prices are not the inflation; they are a consequence of the inflation. Then when the authorities try to rein in the soaring prices that their money and credit creation caused, they jack up interest rates and bring on a recession or depression.
It’s the same with the weather. It rains and then the streets get wet. Wet streets don’t cause the rain any more than rising prices cause inflation. They are a consequence, not the source.
The stupid quotes from officialdom keep on coming. Just last month at a central banking forum in Portugal, the chairman of the Federal Reserve, Jerome Powell, said this with a straight face: “I think we now understand better how little we understand about inflation. This was unpredicted.”
Unpredicted? What’s the address of that cave Powell lives in? This bout of price hikes was forecast by a boatload of economists, including me in this piece for El American 16 months ago.
Error, deception and havoc are plagues on the long history of money, but not because of the stuff itself. Money, after all, is a remarkable and indispensable invention of the marketplace—a medium of exchange that facilitates commerce in complex ways that mere barter could never do. It’s the abuse of it that creates problems, as John Adams noted in a letter to Thomas Jefferson in 1787:
All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.
For interested readers who want to explore the fascinating tale of money, see the suggested readings below this essay. Meantime, allow me to present a few of the most instructive comments ever made on the subject.
I rarely quote the British economist John Maynard Keynes. He was prolific but often wrong. Nonetheless, he knew that government could cause chaos by inflating the money supply:
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 does it in a manner which not one man in a million is able to diagnose.
To “debauch” means to corrupt and degrade the value of money. Governments do it by printing too much, or reducing the precious metal content of coinage, or other means of debasement. A particularly interesting example comes from 17th Century Europe, during the Thirty Years’ War. You can learn about it here.
One of the enduring fallacies about money is that it must be a duty of the government to provide it (despite government’s sorry track record). We will never be free of destructive inflations or deflations until we toss that bit of flim-flam into the bonfire. Economist Murray Rothbard expressed the alternative succinctly:
Freedom can run a monetary system as superbly as it runs the rest of the economy.
Imagine if bread were provided the way our money is. We would have a government bread monopoly supervised by a Federal Bread Board. Its members, appointed by the President, would decide how much bread should be supplied. It would be a central planner’s playground but every consumer’s nightmare. Shortages, surpluses, and political shenanigans of every stripe would ensue.
But as it is, thankfully, bread is supplied by the market—by multiple, private, competing enterprises. It comes in numerous shapes, sizes, and recipes. If bakers offer too little or too much, they’ll get the message by way of rising or falling prices. No pompous, presumptuous central planners are needed.
Historically, when free markets governed our money, precious metals arose as its most reliable form. World history’s greatest advances of wealth creation occurred during the times of price stability that gold and silver provided. Economist Henry Hazlitt wrote eloquently in defense of such sound money:
It is the outstanding merit of gold as the monetary standard that it makes the supply and the purchasing power of the monetary unit independent of government, of office holders, of political parties, and of pressure groups. The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.
Of course, power-focused politicians are not much interested in sound money. It restricts their ability to spend. Have you ever wondered if they really know what they are doing when they throw other people’s money around like wastrels? In a moment of remarkable candor, former Missouri Senator John Danforth told a newspaper in 1992:
I have never seen more senators express discontent with their jobs…I think the major cause is that, deep down in our hearts, we have been accomplices to doing something terrible and unforgivable to this wonderful country. Deep down in our hearts, we know that we have bankrupted America and that we have given our children a legacy of bankruptcy….We have defrauded our country to get ourselves elected.
Next week in the second of this two-part essay, we’ll explore money from another angle—as an object of love.
For additional information:
Toward Radical Monetary Reform
America’s First Experiment with Fiat Money
Where Have All the Monetary Cranks Gone?
How Henry VIII Debauched English Money
Myth: Government is an Inflation Fighter
The Times That Tried Men’s Economic Souls
What China’s Hyperinflation in the 1940s Can Teach Us
When Money Goes Bad (free eBook)
Copernicus: Astronomer and Anti-Inflation Economist
How the U.S. Ended Civil War Inflation
What is Hyperinflation? Ask Venezuelans
Lawrence writes a weekly op-ed for El American. He is President Emeritus of the Foundation for Economic Education (FEE) in Atlanta, Georgia; and is the author of “Real heroes: inspiring true stories of courage, character, and conviction“ and the best-seller “Was Jesus a Socialist?“ //
Lawrence escribe un artículo de opinión semanal para El American. Es presidente emérito de la Foundation for Economic Education (FEE) en Atlanta, Georgia; y es el autor de “Héroes reales: inspirando historias reales de coraje, carácter y convicción” y el best-seller “¿Fue Jesús un socialista?”