The Inflation Age
“Money is inflated, depreciated and ultimately destroyed whenever government holds monopolistic power over it.”
Hans Sennholz
Throughout history, few weapons have proven as devastatingly effective as the silent erosion of a nation's currency. As John Maynard Keynes once observed, "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency." This profound insight serves as a stark warning in our current era, where the specter of inflation looms large over global economies. Ironically, it is Keynesian economics that has contributed significantly to the devaluation of numerous currencies worldwide.
For over fifty years, since President Nixon's decision to close the gold window in 1971, we have been living in the inflation age - a time when the very foundations of our financial systems are built upon the quicksand of perpetual currency devaluation. Our modern monetary system is fundamentally designed to function because of it. Central banks and governments, armed with the power of fiat currency creation, engage in a delicate dance of economic manipulation, promising stability while sowing the seeds of long-term instability. In every election cycle, the very architects of our monetary woes are entrusted with the task of solving them; akin to asking the arsonist to extinguish the fire they've ignited.
As we embark on this exploration of our inflationary age, we must ask ourselves: Can we truly trust politicians and central bankers to combat a problem that is intrinsic to the very system they champion? Or is it time to recognize that sound money - currency resistant to political manipulation and debasement - must be the first line of defense for a society that values economic freedom and stability? In this article we’ll examine the hidden costs of inflation, and challenge the conventional wisdom that has led us to this precipice.
"Would I say there will never, ever be another financial crisis? … Probably that would be going too far. But I do think we're much safer, and I hope that it will not be in our lifetimes and I don't believe it will be"
Janet Yellen
In his book, “When Money Dies”, Adam Fergusson offers more than just a historical account of destructive monetary policy. The book serves as a cautionary tale, warning against repeating the hubris of German bureaucrats during the Weimar republic who allowed inflation to spiral out of control. In one of the chapters, Fergusson recounts the plight of Anna Eisenmenger, a Viennese widow, who helplessly watched her Austrian kronen plummeting in value from 1/4 to 1/35,000 of a British pound between 1914 and 1922. As hyperinflation ravaged the economy, she resorted to black markets and pawning possessions to feed her starving children. Anna's tragic descent from widow to desperate survivor epitomizes the human cost of hyperinflation. As her kronen evaporated, so did her dignity and security. Her story raises unsettling questions: How quickly can financial stability crumble? What separates us from Anna's fate? In a world of fiat currencies, are we all just a few policy decisions away from watching our life savings turn to dust? The biggest takeaway from Anna’s experience is that inflation degrades both our economy and our souls.
Inflation is often understood as the increase in living expenses, as reflected by the Consumer Price Index (CPI). It is even framed by central bankers as an accidental but necessary part of the financial system that is ok as long as it remains within the arbitrary bounds of 2%. However, upon closer scrutiny of what CPI entails, it becomes evident that it is not just a highly manipulated metric but a by-product of expansionary monetary policy, with a general increase in prices being an effect of this, coupled with a corresponding decrease in the currency's purchasing power. By framing inflation as a minor, tolerable aspect of our financial framework, we are distracted from the reality that it represents a subtle, yet insidious, erosion of our collective purchasing power. In short, inflation is not a natural occurrence, but rather a consequence of the deliberate actions of those who wield power over our economic systems. Inflation is a policy.
The public's difficulty in understanding inflation’s true nature is often obscured by policymakers that present it as a highly complex phenomenon that can only be resolved by a specific political party or politician. As a result of this, the current monetary system's cornerstone, time and energy theft, continues unabated even when new public officials are elected into office. These policymakers, even when they mean well, are faced with an impossible task, where they attempt to resolve a deeply rooted issue with superficial tools while leaving the fundamental cause untouched. If it was well understood by the general populace that inflation is the involuntary confiscation of their time and energy, there wouldn’t be any rational person who would even tolerate a 2% inflation rate.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
Henry Ford
Money is not just a medium of exchange, but a claim on the most precious resource of all: human time. The centralization of the power to create money presents a grave danger, as it empowers a few individuals the ability to manipulate and devalue the collective sacrifices of an entire nation's labour and time. If money is understood as an abstract representation of time and energy, exchangeable for the sacrifices made by others through their time and energy investments, a "2% inflation target" is actually a slow motion erosion of one's time and energy. The real cost of inflation extends beyond the price tags at grocery stores. It profoundly affects various aspects of people's lives, including their creativity and ingenuity, the choice of whether to start a family or not, the health of their marriages, their mental well-being and overall quality of life. The unfortunate reality is that in most cases, as the value of currency plummets, so too does our sense of security, our aspirations, and our very notion of what it means to live a fulfilling life. The detrimental impacts of fiat money are evident in the increase in divorce rates, crime, unemployment, consumer debt, drug abuse, and the number of people on antidepressants
All of these negative consequences are directly or indirectly caused by the excessive money printing that has become the hallmark of our society. Austrian economist Jörg Guido Hülsmann calls this phenomenon the “inflation culture”. In his book “Abundance, Generosity, and the State: An Inquiry into Economic Principles” he describes the inflation culture this way:
“The introduction of inflationary policies rarely brings about sudden and widespread changes in human behavior. But when they are pursued over decades or centuries, they cannot fail to bring about radical and pervasive changes of behavior. They then create a permissive “inflation culture”...The willingness to make donations of time and material goods is compromised. Less time is spent on disinterested activities, whether reading, music, sports, education of one’s children, worship, or spending time with others. The important word here is “disinterested.” People might still read a lot, for example, or spend time with others. But these would tend to serve distinct purposes, such as professional training, social standing, or networking. Friendships would still exist, but utilitarian friendship would rise in importance.”
These effects are hardly discussed at all when the impact of inflationary monetary policy is being assessed. As long as the GDP is growing all is well with the world, or so the reasoning goes. Against our better judgment we stubbornly persist with this line of thinking to our own detriment even when it’s clear that it’s anything but beneficial to our well being. Why is that you may ask? Is it because we are too oblivious to recognize the deception that central bankers have perpetrated on us for centuries? Or is it because, despite our knowledge of the fraud, we prefer to live in denial?
I am yet to arrive at a convincing answer however one thing that is clear is that most of the people alive today, particularly those who were born after 1971, have never used real money. We have been conditioned to think of debt-backed currency issued by the state as money. As a result even our understanding and management of our own private property becomes extremely warped by the fact that everything we own is an extension of the state with debt attached to it. None of us at this point can even fathom paying cash for a house or a brand new car.
Hulsman makes another interesting observation in the book when he said;
“In an inflation culture, the “vanishing respect for property” is not only to be found among thieves and taxmen. It also affects the owners themselves. When they leverage investments and fragilize their firms, they too become lax about their own property...And it is this financialization of the economy which evaporates ownership. Today, financialization is manifest in the blatant disinterest of many start-up entrepreneurs in the long-run welfare of their firms. And the heirs of many established industrial firms are equally indifferent. They see their industrial property above all as collateral needed to obtain cheap credit, with which they grow the firm before selling it off and cashing in. Clearly, such an attitude undermines the long-run potential of any industrial enterprise.”
While largely unseen, these resets in our attitudes happen slowly and are part of the reason why we live in a relatively unstable world. It’s only when one fully comprehends the big picture that it becomes obvious why Bitcoin is more than just a cool technology. It’s a tool through which the diabolical fiat monetary system can be permanently obliterated. It’s the once-in-a-century opportunity to undo all the damage that fiat money has caused in the last century. While Bitcoin is not going to make human beings less selfish or less prejudiced than they are; it will definitely result in a monetary system that is free from an annualized 2% theft rate.
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