Inflation

(Reprinted from Roots of Reconstruction [Vallecito, CA: Ross House Books, 1991], 641-644.)
Chalcedon Report, No. 37, September 2, 1968

After World War II, an American in Shanghai, the Rev. D. R. Lindberg (one of our Newsletter family) walked downtown one morning and witnessed an amazing sight. Wealthy Chinese sat on the sidewalks and even in the streets, weeping and sobbing uncontrollably. Scattered around them were large piles of paper money, in denominations up to $5,000. A government order, in view of rapidly growing inflation, had declared the bills of $5,000 and under to be invalid, and their wealth and life savings had just been abolished. They had gone from store to store, bank to bank, hoping to realize something, and they had failed. However, the money, if accepted, would have done them little good. A little later, this American paid $25 million for a new suit; exactly a week to the day later, a small dime store mouth organ for his son cost $50 million, and such was the distrust of all paper money that it took two American paper dollars to buy one Chinese silver dollar. This is inflation, the breakdown of paper money. Millionaires find themselves unable to buy a slice of bread with their millions, and, in some instances, have starved to death.

Inflation is one of the results of managed money, and managed money is the cornerstone of socialism. In fact, socialism is impossible without managed money. Managed money is the deliberate, state-controlled debasing or counterfeiting of money as the basic form of social planning. Paper money, and coins of baser metals passing in the place of silver or gold, is managed money, whereas gold and silver coinage, which constitutes real wealth, is valid money. For money is not merely a medium of exchange: it is a form of wealth, and if the medium of exchange is a controlled and counterfeit one, wealth is progressively confiscated and destroyed. As a result, the first and basic step in any socialism, in any statist confiscation of private wealth, is to require people to accept a counterfeit or debased money, a mere representation of wealth, in exchange for their very real wealth, their labor, goods, and properties. Managed money is the basic form of socialist planning. The state produces the managed money and begins to spend it for social planning. With this managed money, the state can further its welfare programs, its progressive controls and expropriations, and its total programs of planning and socialization, because, as the producer of managed money, it is the biggest buyer on the market. The state buys real wealth in the form of labor, goods, and properties and gives managed money, counterfeit wealth, in exchange. The paper value of the people’s wealth increases for a time, and prosperity seems to prevail, until the process reaches the point of increasing confiscation as the money rapidly inflates and becomes worthless.

But a runaway inflation not only destroys the creditors, the middle classes, and all with savings, it also destroys the state which permits it. It leads to a collapse of the civil government which promoted it. Previously, runaway inflation has repeatedly occurred. Will it again be the route to disaster?

Managed money, or socialism, is a parasitic economy. The state feeds on the people’s wealth, and the people eat up their own future, and their country’s future, with a debt economy and growing areas of socialization. Socialization produces temporary benefits to some, but socialization, as a parasite economy, must rob and confiscate in order to give. Instead of creating new wealth, it destroys existing wealth.

As a result of this progressive confiscation and destruction of wealth, the country begins to falter and to move towards economic collapse and catastrophe. A savage struggle for survival then begins. The socialist, interventionist, or welfare economy then faces a grim choice: who shall survive, the people or the state? Increasingly, in the modern world, the socialist answer is that the people must be sacrificed to preserve the state. To stop deficit spending and return to hard money would create a depression, which would hurt but would save both the state and the people, although at a cost, but this would involve abandoning socialism. This the state will not do, because to sacrifice socialism now means to sacrifice the state, which now sees itself as identical with socialism.

As a result, the state turns to what Wilhelm Roepke and Hans Sennholz have described as repressed inflation. Repressed inflation, according to Roepke in Economics of the Free Society, “consists fundamentally, in the fact that a government first promotes inflation but then seeks to interdict its influence on prices and rates of exchange by imposing the now familiar war-time devices of rationing and fixed prices, together with the requisite enforcement measures.” In other words, the cure for the disaster bred by the growing controls of money, men, and property is total controls! This is like saying that the cure for tuberculosis in one lung is its presence everywhere in both lungs.

Roepke noted that repressed inflation is more deadly than open inflation and “ends inevitably in chaos and paralysis.” And it is repressed inflation which we are steadily getting, as the federal government moves to control steel, copper, and aluminum prices, and to limit private spending by taxation, while continuing and increasing its own deficit spending. On May 9, 1959, Arthur Upgren, in the Minneapolis Star, stated that the U.S. would “go bust” by 1970 because of the breakdown of money. In a paper on the subject, “Why the United States Is Most Likely to Have a Financial Collapse in 1970,” Upgren offered as his answer to the pending crisis more money management. But more money management means simply more socialism. Briefly, such answers in effect declare that the only way to escape economic law is by means of the totalitarian law of the state.

This then is the course being progressively taken, more money management, which means more socialism, and thus progressive confiscation. This means chaos and disaster. It means the breakdown of money also. But, most of all, it means the end of socialism. The socialist states of the world are all parasites. As parasites, they have lived off their people first, and then off the United States. Now, as repressed inflation begins to work to gut the American social order, the socialisms of the world will collapse with this breakdown of American free enterprise. When the host body dies, the parasite also dies. The desperate attempt of socialism to survive by sacrificing its people fails to work; without outside help, socialism dies. A socialist world cannot exist.

Thoughtful men will naturally seek to protect themselves by investing in land, gold, silver, and other historic hedges against inflation, but the counter-hedges of socialism against self-protection are greater than ever before. And, while survival is important, it is not enough. Socialism is finished: it is destroying itself, and although the worst lies ahead, the certainty of socialism’s collapse is nonetheless inescapable, and it must be a basic premise of all thinking concerning the future. The central concern even now must be reconstruction, the creation of new institutions dedicated to liberty, education to that end, and the assurance that the fresh air of liberty is ahead, past the days of chaos. The wise, therefore, will recognize that the breakdown of money, socialist money, is overtaking us, and that there is no security in counterfeit currency. Before they sit weeping, like the Chinese of Shanghai, surrounded with their worthless money, they had better dedicate themselves and their wealth to the cause of liberty before it is too late. As Sennholz has pointed out, our managed money today is the poorest form of investment for the future. In the long run, an investment in liberty offers better returns.

The above was written two and a half years ago and filed away. Today, there is no reason to change a word of it.

The news accentuates our crisis. For some years now, people have profited by inflation. They are now geared to what Gary North calls “the economics of addiction.”

A news report of Saturday, August 24, 1968, is headed “Brink of Credit Disaster” (Oakland, CA, Tribune, p. 1) and states that “Over one-third of all American families are on the brink of serious financial trouble” because of heavy indebtedness. And most other Americans are also very much in debt and cannot take a real crisis. The reason is that “a consumption ethic has replaced the work ethic.”

The demand by all these people in debt will be for more easy money, more paper, in order to pay off good debts with bad money. The people have a vested interest in more inflation; their prosperity depends on it. The federal government also has a vested interest in more inflation; its power depends on it.

When over one-third of all American families face financial disaster or very serious trouble, according to the American Association of Credit Counselors, can anyone imagine an administration doing anything but inflating? Virtually all the politicians of these days seem primarily interested in power, not the future, and the road to political power is now inflation. After them, the flood.

The foundations are being destroyed. It is high time to rebuild, to rebuild on a solidly Christian foundation.