Tuesday, November 11, 2008

Inflation & Moral Decay


Another destructive aspect of Inflationary monetary systems is the overall effect on morality. This will in no way be a thorough treatment or even a substantial review. The intent is simply to raise the point.

Consider this Bernanke quote for reference:

We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Ben Bernanke, “Deflation: Making Sure ‘It’ Doesn’t Happen Here” Remarks before the National Economists Club, Washington, D.C., 21 November 2002

First note that the Federal Reserve actions are linked to "a determined government".

Next we see that this determined government, acting through the Fed, "can always generate higher spending". In other words, the government can use the inflationary monetary system to, in effect, force citizens to spend, rather than save.

Keynesians claim that the key to economic vitality is spending, while Austrian economists contend that the key is savings. Since one would be hard pressed to produce widgets with no production tools and production tools are capital intensive, it makes sense that before a low cost, high quality, efficiently produced good can be made available for purchase, someone had to save enough to build the widgit factory.

In addition, savings is not the destruction of money, it is the deferral of spending. The money simply is held for future purchases. In addition, savings in a sound money economy lowers interest and enables the production of consumption goods in the future.

Enough of that. Effect on morality is the question we are considering.

If a determined government forces consumers to spend (as their only defense to rising prices caused by the government inflating the money supply), then consumers can only buy cheap goods or go in debt to buy before prices rise. In either case, a "consumption economy" is created. The market churns out large volumes of cheap goods that are replaced every few years. Durable goods are not very durable any more.

The virtues of saving and planning are replaced by the vices of irresponsible spending and debt.

This fosters an instant gratification mentality. Because no one looks forward in time considering what can be bought in the future, planning and frugality become a mockery. Because we are trained not to look forward, we certainly lose any grounds for looking back to discover and maintain tradition.

Consider the present conditions in the US. Households and businesses are in deep debt. The family is under assault. Integrity seems to be in decline. Instant fixes to every problem are on the shelf. Morality and frugality are mocked.

Inflation transfers wealth and productivity into the hands of the propagandist. The declining dollar trains people to seek instant gratification and live in perpetual debt. That is more than an unhealthy combination; it is a recipe for disaster.

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