HOW TO STOP INFLATION? Remove the cause! Stopping
inflation is as simple and as difficult as that. Everyone says he's
against inflation; yet, what do we find? Nearly everyone overlooking the
sole remedy and, instead, conjuring up schemes to soften inflation's
disastrous effects. Interestingly, all schemes or nostrums which ignore
the cause, if and when adopted, sink us ever deeper into the mire. As if
inflation weren't bad enough, most proffered "cures" would worsen the
situation!
Many years ago a professor of economics told a group
of us about his experiences at the University of Heidelberg during the
German inflation. Faculty members were paid once a month. As the
inflation began to gallop, they were paid twice a month, then each week,
then each day. Finally, they were paid in the morning, rushing the
checks home to their Frauen before going to their classrooms. Why?
Prices were multiplying many times each day, so shop in the morning!
There came a time - August 1923 -when 100 billion marks would not buy a
loaf of bread.
What was this professor's recommendation to those in
our group who foresaw similar problems in our own country? His advice
was to out-produce inflation! Imagine a professor of economics not
understanding that all production creates its own purchasing power!
A few thoughts inspired by the professor's naive
thinking: Production involves the efficient combination and use of
scarce resources in the process paying for each resource a price high
enough to pull it away from other owners and other uses. To produce more
housing, for instance, involves paying higher wages, higher prices for
lumber, hardware, masonry, and the like, to attract those scarce
resources from other uses. Meanwhile, each supplier of such resources
has the additional income to spend, a process sometimes expressed as
Say's Law: "Production creates its own purchasing power."
The truth is that inflation does not result from the
lack of housing or other goods or services. It is nothing more nor less
than the printing of what the government has declared to be legal
tender, that is, printing ever-increasing quantities of fiat money.
Unless house-building or other productive activities stop those printing
presses - an absurdity - then trying to out-produce inflation is as
futile as trying to out-run one's own shadow. So the professor's cure is
on a level with most remedies now being dinned into our ears.
Trying to Live with It
It is not that the inventors of these schemes agree
with inflation. Quite the contrary! Rather, it is that they see no way
to be rid of it; inflation is here to stay even worsen -thus, why not
find a way to prosper and thrive in a monetary holocaust! The fact that
this requires non-existent skills in legerdemain deters them not.
Two such schemes recently came to my attention. The
first proposes that all contracts -loans, for instance - be repaid
(legally enforced) in dollars of the same purchasing value as when
contracted. If the value of the dollar should decline at the rate of 15
per cent a year, then a 10-year loan of a thousand dollars would be
repaid in the amount of more than $5,000, plus interest.
Even in the face of the current inflationary
pattern, what borrower would be willing to sign such a contract? Only
the person who cannot see "beyond the end of his nose." There would be
little if any futures trading; indeed, contractual relations would all
but cease, production would decline at a frightening rate. Further,
there is nothing in this scheme to halt the outpouring of fiat money; it
would go on its merry way and, because of the fall off in production,
the dollar would buy far less than were the scheme never adopted.
Approval? Indeed, not!
The other scheme requires that all business ventures
be compelled to adopt the "profit-sharing" procedure - employees as well
as entrepreneurs sharing in the gains.
This is inspired by some remarkable successes such
as Lincoln Electric of Cleveland. The assumption is that if Jim Lincoln
could, by this arrangement, earn a great deal for himself, pay higher
wages than others, and undersell all of his competitors, so could
everyone else -hundreds of thousands of businessmen from hamburger stand
owners to General Motors. Simply pass a law and make every entrepreneur
operate like Mr. Lincoln!
Overlooked is the fact that only one Jim Lincoln
ever existed. There are no two entrepreneurs who operate their
businesses alike, nor could they do so if they tried. Each is -novel to
some extent; and consumers - that's all of us - are thus advantaged.
Any profit-sharing arrangement should, in all
fairness, be also a loss-sharing arrangement. But most wage earners
would shy away from any employer who required employees to share any
losses his business might incur. Why? Tens of thousands of businesses
fail annually, as everyone knows.
Were profit-sharing made compulsory for everyone,
production would dramatically decline, just as in the first scheme.
There would be other results, no less disastrous.
Out-producing inflation or fulfilling contracts at a
constant purchasing power or forcing every business to engage in
profit-sharing are no more than "pipe dreams." Adoption need not be
feared. These schemes merely illustrate how people avoid pinpointing the
cause of inflation and, thus, propose remedies which compound the
problem.
Price Control and Rationing
However, what do we find in the day-to-day world of
"practical" politics? The worst of all possible schemes: price control
and rationing as edicts by the Federal government and wage controls in
the hands of labor unions. Below market prices and above-market wages!
Inflation is not questioned; we have instead only futile attempts to
escape the effects, which make the effects increasingly disastrous. In
what way? Production is both diminished and distorted. Figuring out how
to out-scheme the political schemers takes the place of discovering how
best to satisfy consumer preferences. Schemers with political and
coercive power make schemers of every one of us they overpower.
To illustrate: By reason of governmental
intervention, the supply of gas and oil is curbed and the demand
increased. What to do? Ration the fuel! To the station attendant say,
"Fill 'er up ... .. Sorry, only $3 worth to a person." So the car owner
takes what he can get and goes to another station repeating, "Fill 'er
up." Gas wasted going from station to station! Eventually, all the gas
is gone, but consumers still have "gas money" burning holes in their
pockets. The best way to ration gas or any other scarce resource is to
let the price rise to a point where the supply is sufficient to meet the
demand.
We need only come to our senses to stop inflation;
nothing is required beyond discovering its cause and then being rid of
it. The cause? Over-extended government. To repeat what many of us have
written over and over again: when the costs of government rise beyond
the point where it is no longer politically expedient to defray the
costs by direct tax levies, governments all over the world resort to an
expansion of paper money - inflation - as a means of making up the
difference. Inflation dilutes and depreciates the medium of exchange as
a means of syphoning private property into the coffers of
government.1 Here we have the cause, so simple to see
through. But being rid of the cause is not simple. Why the difficulty?
The difficulty is rooted in an unintelligent
interpretation of self-interest. Today, all of us without exception are
feeding more or less at the Federal trough. True, there are a few who
are force-fed, not dipping into the trough willingly. Finding it
necessary to live in the world as it is, they participate in the
deficit-burdened, socialistic mail system-to name but one of many
examples. But most citizens today - a number perilously approaching 100
per cent - mistakenly feel that they have a vested interest in the
continuance of one or more, if not all, Federal "programs" that go to
make up the deficits that can be met only by inflation: fiat money made
possible by legal tender laws.
Various Vested Interests
Perhaps this citizen only wishes to be paid for not
farming, another to receive social security or Medicare, still others to
be protected against competition, or to have their education subsidized,
or a Gateway Arch for their home town, or whatever. It would take a book
just to list the titles of all the Federal handouts and discriminatory
edicts.2 Anyway, count the persons you know who completely
ignore the "gravy train," who would concede nothing to government beyond
a peace-keeping, justice-dispensing agency of society, who are free from
the feeling that they have a vested interest in this or that deficit
creating, political gimmick. They are "as rare as hens' teeth!"
If an individual could perfectly identify how his
self-interest is best served, he would be all-wise. However, I am not
alluding to perfect wisdom but to that level of intelligence any
adolescent should possess. Most youngsters know that their self-interest
is not advanced by stealing-living off the fruits of the labor of others
coercively exacted. They would not regard face-to-face thievery as in
their own interest. And there are thousands of high school students who
are bright enough to see that there is no distinction between pointing
the gun oneself and getting the Federal government to do the "stick-up."
The loot would be ill-gained in either case. Self-interest is not served
by either method. One need not be overly brilliant to see this.
Yet, what do we find? Millions upon millions
identifying self-interest with legal plunder! The more political largess
they can get -regardless of the force used the better. It is not that
these people, many of whom are college graduates, could not rise above
this infantile level of thinking; they could if they would, but they
don't. Further, these millions do not see how their self-interest is
subverted rather than served by this socialistic plundering, and they
cannot be expected to understand why inflation is not also identified
with their self-interest. They see inflation, if they see at all, as the
means of filling the thousands of troughs from which they feed without
either thought or effort. They love the role of parasites!
Given these millions who thoughtlessly behave this
way, plus the political exploiters of nonsense, the situation, on the
surface at least, looks hopeless. Stopping inflation appears to be
impossible, and certainly this would be the case were it a numbers
problem. But, thank heavens, it never has been a numbers problem, is not
now, nor will it ever be. It is strictly a matter of inspired and
intelligent leadership.
A Natural Aristocracy
Statesmen - in and out of office - are more and more
in evidence, persons who think for themselves and stand forthright for
their enlightened convictions. These few - thousands, of course -
understand that self-interest is to be identified with individuals in
the role of hosts - producers, not parasites. They also know that
inflation is deadly - for parasites cannot exist without hosts. As the
troughs empty, attrition increases, especially among the parasites.
As this natural aristocracy comprised of men of
virtue and talents - approaches the pink of condition, rises to the top
in thinking how self-interest is best served, the nonsense is stopped
dead, then subsides! Your role and mine? Try one's best to be this kind
of an exemplary aristocrat. This, I submit, is the sole formula to stop
inflation.
Fiat Money Inflation in France
Out of the Inflation of prices grew a speculating
class; and, in the complete uncertainty as to the future, all business
became a game of chance, and all businessmen, gamblers. In city centers
came a quick growth of stockjobbers and speculators; and these set a
debasing fashion in business which spread to the remotest parts of the
country. Instead of satisfaction with legitimate profits, came a passion
for inordinate gains. Then, too, as values became more and more
uncertain, there was no longer any motive for care or economy, but every
motive for immediate expenditure and present enjoyment. So came upon the
nation the obliteration of thrift. In this mania for yielding to present
enjoyment rather than providing for future comfort were the seeds of new
growths of wretchedness: luxury, senseless and extravagant, set in.
This, too, spread as a fashion. To feed it, there came cheatery in the
nation at large and corruption among officials and persons holding
trusts. While men set such fashions in private and official business,
women set fashions of extravagance in dress and living that added to the
incentives to corruption....
Thus was the history of France logically developed
in obedience to natural laws; such has, to a greater or lesser degree,
always been the result of irredeemable paper....
Andrew Dickson White
1 For a more complete explanation of the cause, see
my pamphlet, "The Essence of Americanism." Copy on request.
2 See Encyclopedia of U.S. Government Benefits, a
tome of more than 1,000 pages with over 10,000 "benefits." (Union City,
N.J.: Win. H. Wise and Co., Inc., 1965.)
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
November, 1973, Vol. 23, No. 11.
Yourname@libertyhaven.com
