A PLEASANT premise underlying socialism is that
everyone should be able and willing to pay prices high enough to cover
costs. Then, no one ever would be obliged to work for less than "a
living wage." Such is the foolish dream of persons who do not understand
the process and the advantages of free trade.
True, one trades in order to gain something of greater
value to him than what he gives up in exchange, and so does every other
trader. Each strives to satisfy his wants with the least effort or
expenditure; but the trader differs from socialists for he does not
expect anyone else to give up something for nothing.
A second significant difference between a trader and a
socialist concerns their respective views about money. To a trader,
money is that particular item of commerce so much more universally
acceptable in trade than other scarce and valuable items that it serves
as a useful medium of exchange. It opens up a far wider range of market
opportunities than could possibly be reached through direct barter. It
is useful as money because the overwhelming majority of traders are
willing and anxious to accept it in payment for their wares.
An entirely different concept of money is implied in
the language and philosophy of socialism. Those who speak of "a living
wage" and of "Prices high enough to cover costs" are not thinking about
willing customers, or of a money that arises naturally out of willing
exchanges in the open market. What they seem to have in mind, instead,
is a purchasing power to be created out of thin air -that ancient dream
of alchemists and counterfeiters.
Counterfeiters Need "Legal Tender"
Now, it's easy enough to take a base metal and color it
"gold," or to print a slip of paper and call it "money." The trick is to
make others believe it. Counterfeiters and confidence men are indeed a
nuisance to producers, traders, savers, especially to those who are
willing to venture into shady deals. But with a bit of experience and
wariness, an honest trader can readily spot such risks and direct his
business toward men and money he trusts.
So, what is the poor counterfeiter to do? He will do
his best to have his "money" declared legal tender, which means that the
government would force creditors to accept it when offered in payment of
any debt.
Any debt? Including taxes? The government that levies
and collects taxes is expected to grant to someone a note-printing
monopoly? It takes no political genius to rise to the conclusion that if
anyone is to print notes to be enforced as legal tender, surely that
monopoly had best be exercised by the government itself! And that is
socialist monetary policy in a nutshell: the government in full control
of the "money machine."
If government expenditures rise, just print additional
bogus money. Soon enough, this bogus-money-declared-legal-tender will
have driven into hoarding or hiding any more substantial or trustworthy
medium of exchange, As Sir Thomas Gresham observed: "Bad money drives
out good." This is the monetary manifestation of the more general law
that people always will use the cheapest and easiest means available to
obtain their various ends. In other words, if the government decrees
that a piece of paper or an alloyed coin is equal in purchasing power to
the precious metal that the market had chosen as money, then customers
will do their best to make sellers take the bad money. And even the most
honest and scrupulous of men will gladly use the bad money to meet his
tax payments.
However, a small problem looms for a national
government: its taxing power and legal tender monopoly end at the
border. It may be able to fool or to browbeat foreign suppliers for a
time into accepting printed paper to cover trade deficits; but
eventually, international trade balances are payable in goods of value,
such as gold. Even an international monetary cartel such as the Bretton
Woods agreement breaks down as soon as the gold runs out -a breakdown
which President Nixon declared official on August 15, 1971.
It Stops at the Border
At this point, let us pick up the thread of the labor
theory of value with which we began this discussion of inflation: the
socialistic presumption that everyone is entitled to "a living wage,"
whether or not he earns it. The late Lord Keynes translated this fallacy
into the language of politics, saying in effect: the way to stay in
office is to woo organized labor; if the unions demand higher wages,
meet their demands through use of the money machine.
Some witnesses, seeing that the "money" button is now
being pushed by organized labor, have come to the remarkable conclusion
that this is a new kind of "cost-push" inflation, unlike the old
"demand-pull" type; the union wage demands are pushing prices up, so the
money-machine isn't the culprit after all. Therefore, let's freeze wages
and let the machine run until the economy has regained its health! That,
too, was implicit in the official declaration of August 15, 1971.
Despite all the International Brotherhoods of this and
that, the new "cost-push" inflation has no greater power over foreigners
than has any other name for the game. In the markets of the world, it's
still the same: put up, or shut up; if you want our goods and services,
give us your goods or your gold; worthless paper not accepted here; the
exorbitant wage demands of American labor unions are not legal tender in
Japan, so sorry!
So, in the final analysis, what a nation can do is to
inflate itself out of the world market and practice its splendid
isolationism to the very brink of its own disaster -if not further. And
a citizenry that will thus demand and tolerate socialism fully deserves
it. Nor is it an effective cure for inflation to demand that the
government more stringently regulate the monopoly powers granted to
organized labor; of course those powers are used and abused to
everyone's detriment and ought to be withdrawn. So should numerous other
special privileges and government-sanctioned interventions that disrupt
peaceful production and trade. However, as long as the government has
power to declare that paper is legal tender, there is little prospect
that the economy may be free of inflation and socialism.
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
January, 1972, Vol. 22, No. 1.
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