will you join the Party when it’s time?

The study of history makes a man wise and judicious.

So says Ludwig von Mises on page 30 of Human Action. If he’s right, that would make a powerful reason for anyone to study history—and I think he is right. We all learn from experience, and there is therefore a certain wisdom that comes naturally from aging. This is the reason that elders have traditionally been the repositories of a society’s wisdom. History, written accounts of the past, allow our “memory” stretch back before our birth and before the births of our own parents and grandparents. It can give us that most precious of gifts: the opportunity to learn from others’ mistakes.

Two of the books in my current reading pile are histories, and they both concern money: When Money Dies by Adam Fergusson, an account of the Weimar inflation in Germany published in 1975, and The Ages of Gold by Timothy Green, an overview of the history of humanity’s relationship with gold. I find the subjects interesting in their own right, but also and more particularly because I believe they relate to our current situation in the world. The price of gold in U.S. dollars is at an all-time nominal high, but does that mean that gold has special relevance now for other reasons? Yes, I think it does. And the hyperinflation that hit Germany, Austria, and Hungary in the early 1920s, and that had modern Europeans dying of hunger and produced images of people rushing madly to shops with wheelbarrows full of near-worthless cash—does that have any bearing on our life now? Again, yes, I think so—very much so.

I’m about halfway through When Money Dies, and so far the most striking thing in the account is the persistent denial by authorities, journalists, and just about everyone in German society at that time that the steep climb in prices and the collapse of the mark’s value against other currencies had anything to do with the enormous volumes of money they were printing. By 1923 several printers in Germany were printing nothing but banknotes, and these they were printing around the clock, as much as their equipment and the stamina of their employees would allow. Government ministers and newspaper editors solemnly asserted that the printing of notes was an effect, not a cause, and that the mark would recover if foreign sentiment changed and if the onerous reparation payments could be reduced or halted.

Paraphrasing a British diplomat’s observation from the time, inflation is like a drug addiction in that it leads to death, but also helps get you through some rough times on the way there. The Weimar government printed money because they saw it as the least painful alternative, and they developed their arguments in order to rationalize the decision. When you print—or otherwise create—money it loses value, not because of people’s behavior, but because when you increase the denominator of a fraction, that fraction becomes smaller. If you take a 12-inch ruler and divide it instead into 13 inches or 14 inches, the “inches” must get smaller to fit them all in. As we use a ruler to measure length, we use money to measure value. As the quantity of money increases with respect the total goods and services being measured, the more money it takes to buy any given thing. Put another way, prices go up.

But it takes time for the process to play out. Money is always injected at particular places in an economy. From those places it has to fan out in order to permeate the economy as a whole. That temporal process of fanning out causes a little-understood transfer of wealth—purchasing power—from those at the end of the process to those at the beginning. And those at the end of the process tend to be those with the lowest incomes and the least wealth: minimum-wage employees and those depending on them.

Those at the beginning of the process are, in the United States, the Federal Reserve and the Treasury, followed by the banks most closely connected with them, followed in turn by major government contractors and other banks, and so on down the line. The creator of a new dollar gets to spend it at today’s prices. By the time that dollar makes its way to a Wal-Mart greeter in Tulsa, prices have adjusted upward and it buys less for that person than it did for Haliburton, who was near first in line for it. That difference in prices was the amount of purchasing power, of wealth, that was, in effect, transferred from the greeter to Haliburton.

While I would not agree with the French anarchist writer Pierre-Joseph Proudhon that “property is theft”, I think a strong case could be made that inflation is theft, and of a uniquely unjust kind, because it is:

  • regressive—robbing the poor to pay the rich
  • stealthy—not easily perceived or understood
  • legal—sanctioned and rationalized by those entrusted with maintaining the order and justice of the state, who also happen to be the recipients of the wealth

People feel the injustice of inflation without being able to pinpoint its cause, which leads them to seek out scapegoats and to be attracted to demagogues. One of the most striking things to people in the Weimar hyperinflation was how the situation put different segments of society at odds with each other: town vs. country, rich vs. poor, native-born vs. foreigner, worker vs. capitalist. Society became charged with hatred and envy, and law was discarded as people stripped the lead from each other’s roofs in order to buy groceries. This was the background against which fascism arose. A cry goes out from the people for someone to “fix this!” They well appreciate that it will take someone who is tough and ruthless, who rules by decree and who is willing, even eager, to liquidate opponents. They’re ready for Hitler.

Am I saying that we’re heading toward another episode of fascist dictatorships in the West? Yes I am; we’re most of the way there.

I think about something I read in Toynbee. A couple of writers late in the Roman Empire discussed the incursion of barbarians on a couple of cities in Europe. Toynbee remarks in passing that these writers, unaware of the fate that awaits the Empire in a relatively short while, see the events as novelties rather than as portents. I think about, say, this year’s riots in Britain. Those are mainly regarded as unfortunate novelties, but I see them as portents. The rioters are looking for leadership, and sooner or later they will find it.

How do I know this? By reading history.

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