THE ECONOMICS OF ARMAGEDDON
Whenever I’m stuck over something to write about I dig out my dog-eared volume of Human Action by Ludwig von Mises. This great economist warned time and again about the sorry consequences of our left- wing monetary policies. Although he passed from the scene in 1973, he was prescient enough to write, “Radical inflationism is an essential feature of the economic ideology of our age.” Mises was death on inflating. He wrote that it was a policy that could not last. Ultimately, it must lead to hyperinflation or an economic bust.
He experienced firsthand the Weimar Republic inflation and he explained what happens when governments come to rely on excesses of money and credit. “The course of progressing inflation is this: at the beginning the inflow of additional money makes the price of some commodities and services rise; other prices rise later. The price rise affects the various commodities and services at different dates and to a different extent.
“This first stage of the inflationary process may last for years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who will not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services.
“Finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
“It was this that happened with the continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German Mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds.”
Mises not only advocated free markets, he established the moral foundation that underpins Capitalism: “The market economy directs the individual’s activities into those channels in which he best serves the wants of his fellow man.” He also mistrusted the state. “If government were in a position to expand its power ad libitum, it could abolish the market economy and substitute for it all-round totalitarian socialism. In order to prevent this, it is necessary to curb the power of government. This is the task of all constitutions, bills of rights, and laws. This is the meaning of all struggles which men have fought for liberty.”
Most worrisome is Mises’ warning about what could happen if Marxism and socialism were to prevail over free market capitalism. “It rests with men whether they will make the proper use of the rich treasure with which this [economic] knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”