The Inflationary Road to Ruin
Nicholas Bilitch
[Reprinted from Land & Liberty,
November-December 1977]
The Libertarian philosophy requires a commitment to free trade,
universal rights to land, the integrity of our currency, and a rule of
law which upholds these fundamentally natural rights. Where any or all
of these are absent, there will exist a society in which tension and
disorder are likely to arise; fertile ground in which tyranny and
anarchy may flourish; corruption, violence and poverty come into
conflict with privilege, greed and selfishness. There are no short
cuts to running a free and prosperous society; if the foundations are
suspect, the poor man's cottage and the rich man's castle may not
survive the tensions and distortions to which an unjust society may
give rise.
Bad government this century has seen the collapse of once prosperous
and free societies in such well endowed countries as Uruguay,
Argentina and Chile; the absence of liberal reform has kept much of
Greece, Italy, Portugal and Turkey backward and poor; outside of North
America and Western Europe, totalitarian communist rule imprisons
whole societies in its brutal and bureaucratic grip, while the
breakdown of democracy in large parts of South America, Africa and
Asia has resulted in military dictator-ships surfacing in the wake of
corrupt government, anarchy and civil disorder. Tragically, it will
take more than just liberal reforms to undo the injustices of the
past; ignorance arising from long periods of misrule can take decades
to eradicate.
For much of recorded history free societies have been the exception,
rather than--the rule. During this century alone, wars, whether civil
or between nation states, have been as bloody and as destructive as
any in history. In large parts of the world George Orwell's nightmare
of 1984 is a reality. Why is it that the voices of Marx, Lenin,
Nietzsche, Trotsky, Hegel, etc. have proved more durable and
successful than those of Adam Smith, Locke, Milton, Mill and George.
Posing such a question is a good deal easier than producing a
satisfactory answer. The rise of democracy and the growth of "liberation"
movements has not been accompanied by a corresponding spread of
liberal reform and enlightened government. The chimera of "social
justice" has replaced the classical concept of natural justice,
with its emphasis on individual liberty regulated by the rule of
(just) law.
"There is a great deal of ruin in a nation," observed Adam
Smith. In Smith's day, government profligacy and a host of bad laws
and customs were a hindrance to the growth and development of wealth
in a free and prosperous society. It took a relatively long time
before Smith's wise teaching was taken seriously, and even then, his "disciples"
showed a partiality in selecting those parts of The Wealth of
Nations which prudence and expediency suggested needed
implementing. The abolition of the hated corn laws; the reform of the
currency and banking practice; the introduction of free trade;
balanced national budgets, etc. All these great reforms of the
nineteenth century owed much to Adam Smith's teaching. Had the readers
of The Wealth of Nations absorbed a lot more of his wise
teaching, they would assuredly have brought about a major reform in
the unsatisfactory laws of land tenure. That they observed much of
what he taught, brought about great benefits to nineteenth century
Britain. That they resisted reforming 'our unjust laws relating to
land tenure, was due to an unfortunate failure to recognise the unique
part land plays in ensuring economic progress.
Yet, however much we may regret the missed opportunity regarding
intelligent land reform, the crowning folly of this century has been
the progressive abandonment of economic freedom for the mirage of the
welfare state. The rise of democracy has not been accompanied by an
increase in collective wisdom; rather have we witnessed the growth of
economic ignorance undoing the good that had been achieved by wiser
counsels prevailing during much of the last century. This century has
seen the return to protection; the progressive debasement of our
money; government profligacy and extravagance of an order which
threatens to ruin the nation in ways which very few people in these
islands have yet to appreciate. it took the spend-thrift and corrupt
emperors of Rome's twilight years to achieve that which even Attila
the Hun could hardly have brought about. Debasing the people's money
ruined Rome (as it had ruined other great societies) long before the
coming of its rise to imperial splendour, and it has brought great
economic tribulations to many a nation and civilization since those
halcyon days of the Pax Romana.
Such is the resilience of mankind, a nation can tolerate a great many
abuses and petty tyrannies; render its money valueless, assuredly will
you bring about a contempt for its traditions, institutions and that
respect for law and civilized order which is essential, if a free and
prosperous society is to continue functioning. The enemies of the
libertarian society understand this only too well. No shrewder enemy
of the classical liberal order appreciated this better than that arch
conspirator and foe of the free and open society, Lenin. He is said to
have advised that the most effective way of undermining the
foundations of a system of government he hated and despised, would be
to debauch its currency. Lord Keynes's comment was: "Lenin is
certainly right. There is no subtler or more severe means of over-
turning the existing basis of society than to debauch the currency.
The process engages all the hidden forces of economic law on the side
of destruction, and it does it in a manner which not one man in a
million is able to diagnose."
No system of government, no matter how well supported by traditional
institutions and social customs of long standing, can indefinitely
withstand the ravages of a prolonged inflation of destructive
dimensions. Even a society where free land was available and free
trade practised, could hardly survive the destruction of its money
without severe political repercussions. Where recourse to a barter
economy became necessary, only the reintroduction of good money could
prevent the inevitable widespread starvation and privation from
rendering society to a most pathetic condition. The destruction
brought about by the ruin of the people's money would leave a legacy
of resentment and distrust which might take decades to put right.
Those persons, shrewd and knowing, who surfaced out of the
inflationary ruins rich in property and wealth, would become the
objects of hatred and bitter envy of those whose innocence and trust
had left them in a state of ruin stripped of their life's savings
which had been rendered valueless by an inconvertible paper money
systematically reduced to so much useless waste paper.
To add insult to injury, the pursuit of economic casuistry is nearly
always accompanied by measures of correction which make an already bad
situation even worse. Prices and incomes policies are as old as
economic man. No matter with what severity they have been applied,
they have everywhere failed to achieve their objective and have had to
be abandoned. In many cases the results of applying them have brought
about a degree of public mischief which in some cases has taken
centuries to extirpate. The legacy of economic restriction through the
application of price and wage control has been the growth of vice and
corruption, force and fraud, and with it the extinction of individual
liberty.
The great inflation which ravaged Tudor England led to the
discredited belief in the just price and the just wage re-surfacing
for the umpteenth time. To counter the predictable results of debasing
the nation's currency, the rulers of Tudor England imposed such
Draconian measures as the Statute of Artificers to fix wages. As they
were unable, or unwilling, to fix prices, the results were
predictable. Resentment at having their incomes regulated by law,
while rising prices were beggaring them, the people of England were in
a perpetual state of riot and social disorder, their rulers knowing no
better than to subject the country to further repression and
heavy-handed rule. Revolution and rebellion were everywhere
threatening the peace of the realm. Even had attempts to fix prices
been tried, the results would have been chaotic, as previous
experience in this area had shown, when the various medieval edicts
were introduced for fixing the price of bread, ale and other essential
commodities through the various assizes.
Monetary disorder, which was a characteristic of the sixteenth and
seventeenth centuries, led Thorold Rogers to observe in Six
Centuries of Work and Wages, that:
The issue of base money is rapidly
and irremediably mischievous. It affects all except those who are
quick at measuring the exact extent of the fraud, and by turning the
base coin into an article of traffic, can trade on the knowledge and
skill which they possess. To the poor, and indeed to all who live by
wages and fixed salaries, it is speedily ruinous. The effect of the
base money of Henry VIII and Edward VI, though it lasted only
sixteen years, was potent enough to dominate in the history of
labour and wages from the sixteenth century to the present time,
so enduring are the causes which influence the economical
history of a nation. (My italics.)
By what brand of "magic" did rulers in the past fleece
their subjects? At the time of "the Glorious Revolution"
when William and Mary were placed on the English throne, James II had
fled to Ireland. Finding the exchequer bare, he resorted to the trick
"of calling a farthing a shilling." The manner of debasement
was as old as specie; it was bare-faced robbery in regal style! The
incomparable Macauley, in a lucid piece of monetary history, described
how a profligate monarch sought to extricate himself from mounting
debt by flooding the realm with base coin:
The right of coining was
undoubtedly a flower of the prerogative, and in this view, the right
of coining included the right of debasing the coin. Pots, pans,
knockers of doors, pieces of ordnance which had long been past use,
were carried to the mint. In a short time lumps of base metal
nominally worth near a million sterling, intrinsically worth about a
sixtieth part of that sum, were in circulation. A royal edict
declared these pieces to be legal tender in all cases whatsoever. A
mortgage for a thousand pounds was cleared off by a bag of counters
made out of old kettles. The creditors who complained to the Court
of Chancery were told by Fitton to take their money and be gone.
Such was the sad state of affairs in 1696 that recoinage became a
necessity. The historian and statesman, Lord Macauley has described
the domestic scene at the time in the following words:
It may be doubted whether all the
misery which had been inflicted on the nation in a quarter of a
century, by bad kings, bad parliaments, and bad judges, was equal to
the misery caused in a single year by bad crowns and bad shillings.
The evil was felt daily, and almost hourly, in almost every place
and by almost every class: in the dairy and on the threshing-floor,
by the anvil and by the loom, on the billows of the ocean and in the
depths of the mine. Nothing could be purchased without dispute.
Over every counter there was wrangling from morning to night. The
workman and his employer had a quarrel as regularly as the Saturday
came round. No merchant would contract to deliver goods without
making some stipulation about the quality of the coin in which he
was to be paid. Even men of business were bewildered by the
confusion into which all pecuniary transactions were thrown. The
simple and the careless were pillaged without mercy by extortioners
whose demands grew even more rapidly than the money shrank. The
labourer found the bit of metal which, when he received it, was
called a shilling, would hardly, when he wanted to purchase a pot of
beer or a loaf or rye-bread, go as far as sixpence. When artisans of
more than usual intelligence were collected in great numbers, as in
the dockyard of Chatham, they were able to make complaints heard and
to obtain some redress; but the ignorant and helpless peasant was
cruelly ground between one class which would give money only by tale
(counting) and another which would only vote it by weight.
With minor alterations, this passage from Macauley would fairly
describe contemporary Britain. These days recycled paper and the
printing press perform the same function of monetary debasement. In
monetary matters, the economic clock is back to where it was some 200
years ago. Centuries of such experiences seem to have left no mark on
the wisdom of our present rulers, who imagine that they are clever
enough to defy the immutable laws of economics. They cannot! No-one
can; any more than we can defy the laws of gravity or motion, or any
other natural law which governs the workings of the universe. Playing
around with the thermometer and barometer will not alter the state of
the weather.
Economics and politics in the West has been dominated in the 1970s by
endless discussion on the causes of inflation. Much of the dialogue
has been characterised by ignorance and sophistry. Everyone from trade
unionists and oil sheiks to sun spots has been charged with causing
it. An endless stream of literature has been rolling off the presses
discussing and describing it; a day hardly passes without considerable
discussion of it in the press, on television and radio; politicians,
businessmen and various spokesmen express their views on it; and a
veritable Tower of Babel exists where ignorance tends to obscure the
simple fact that the world is awash with too much money, and no-one
seems to know the best way of stopping it. Every discredited nostrum
is offered; those who should know better pull the bed-clothes over
their heads, mumbling from below the sheets, "We must have a
prices and incomes policy!" The fact that such cures have always
and everywhere failed, is no deterrent. "If at first you do not
succeed, try, try again!" Like the perpetual motion machine, and
squaring the circle, there is never a shortage of enthusiasts out to
demonstrate the impossible. If they stayed at home and practised their
nonsense, no harm would be done; when they rule us and plan our daily
lives, they become a menace, spreading mischief and misery in all
directions.
For anyone wishing to pursue this topical subject further than space
will allow me here, a recent publication is currently on sale. It is
four books in one, and carries the straightforward title Inflation.
There is an excellent account by Michael Jefferson of the history and
cause of inflations past and present; it is described by the
publishers as ". . . a brilliant analysis of the historical role
of inflation starting with the Peloponnesian war of the fourth century
B.C. through the horrendous Hungarian post second World War inflation,
and culminating in the true situation of World economics in 1976."
Also included in this excellent book is Andrew Dickson White's "Fiat
Money Inflation in France", covering the monetary depredations "which
ruined the French economy throughout the French Revolution to the
period of the Napoleonic wars". From the late Thomas Mann there
is an account of life in Germany during the 1923 hyperinflation where
he recounts his experience under the Weimar Republic. This astronomic
inflation left such deep scars, that, along with other German
resentments, and the massive deflation that was required to restore
normality to German currency, it paved the way for the rise of Hitler
and National Socialist rule. Germans know all about inflation; they
had a further nasty dose of it following the second World War.
The remainder of the book is a contribution from a Professor Walt
Rostow, who "has studied the English economy since the
Cromwellian Commonwealth showing how little prices changed until 1913
and how staggering the increase has been since."
It used to be thought that the issue of bad money was only inflicted
on nations by despots and malevolent governments. But as Andrew
Dickson White showed in his minor classic on fiat money in
revolutionary France, so-called popular government could violate sound
principles of currency. Yet inflationists continue to delude
themselves and the mass of the people, that a nation can print its way
to perpetual prosperity and the good life for all! No wonder that the
old style Socialists thought money the root of all evil, which should
be abolished. Their own brand of ignorance led them in turn to those
gross economic errors which characterise the collectivist state they
clamour for. When financing their "Utopia" brings inflation,
they go witch-hunting under every bed for the dreaded "speculator"
and other "enemies of the people". Inflation is inflation --
no matter who is responsible for its introduction. Where it is allowed
to take root, it will, once out of hand, destroy any civilised
government known to man.
Democracy and fiat money have brought us to the brink of ruin. They
could yet bring about the end of representative government and
parliamentary rule. Circuses and expensive bread are a very poor
substitute.
[Fiat Money Inflation In France, by Andrew Dickson
White. Crystal-clear, devoid of sophistry, this painstaking
account by an eminent historian and statesman (1832-1912) of the
cause and mechanics of monetary inflation in revolutionary France
and of the material and moral havoc it wrought, is invaluable to
the student of the prevailing inflation in the Western World.] |
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