Never before have the middle class and the affluent been at greater financial risk. The Federal Reserve is moving ahead with a plan to target the rate of inflation and make inflating a permanent policy. Not that it doesn’t inflate incessantly now. This plan only serves to show how deranged monetary policy has become. It would be better if they truthfully declared that they intend to establish a policy that destroys the savings of the people, debases the dollar and ruins the retirement years of the elderly.
The great Austrian school economist Ludwig von Mises (1881-1973) was the foremost critic of inflation. In 1967 he wrote, “Inflationism is a government policy of increasing the quantity of money in order to enable the government to spend more than the funds provided by taxation and borrowing. Such ‘deficit spending’ is nowadays, as everybody knows the characteristic signature of the U.S. government’s policies.” He added, “There is no reason to be proud of deficit spending or to call it progress.”
Mises’ main complaint against this inflating was the damage it did to the people who saved. In 1960 he wrote, “One of the main achievements of the capitalistic system is the opportunity it offers to the masses of citizens to save and thereby improve their material well being…the value of all kinds of deposits, bonds and insurance policies is inseparably linked to the purchasing power of the dollar. A policy of creeping inflation…is a policy against the vital material interests of the common man. It hurts seriously those judicious and conscientious earners of wages and salaries who are intent upon improving their own and their families’ lot by thrift…It is…diabolic…for more and more government spending to be financed by credit expansion. The bill for such government extravagance is always footed by the most industrious and provident people. It is their claims [savings] that are shrinking with the dollar’s purchasing power.”
Because Mises was Austrian his earliest arguments were not translated or understood in the U.S. Nevertheless his accomplishments were prodigious. Among them was his argument that Communism must fail because free market prices were unavailable to direct their production. They were in the dark on how much of anything to produce. When they ultimately collapsed it was widely acknowledged that he had been right.
During Mises’ lifetime he saw the arguments of John Maynard Keynes become influential. In 1951 Mises wrote, “The triumphs of Lord Keynes’ last book, The General Theory, was instantaneous…it has become the gospel of the self-styled progressives all over the world. Today many universities simply teach Keynesianism. It is really paradoxical. Nobody can any longer fail to realize what is needed most is more saving and capital accumulation and that the inflationary and expansionist polices are on the verge of complete breakdown. But the students are still taught the dangers of saving and the blessing of inflating.”
Mises emphasized the inevitability of a crisis if the inflationary policies practiced by the government and the Federal Reserve were continued. However, not only have they continued they have expanded to a point that would no doubt shock the great economist. In 1951 he wrote, “Continued inflation inevitably leads to catastrophe.” He indicted Washington, “It is government interference that has destroyed money in the past and it is government interference that is destroying money again.”
Mises also scorned politicians, treasury and Federal Reserve officials who claimed to be intent on thwarting inflation. “Those who pretend to fight inflation are in fact only fighting the inevitable consequences of inflation, rising prices…They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar.”
Mises culminated his arguments against inflating with dire warnings on where the monetary policies of today will lead. Bear in mind that Mises through his many books and trenchant arguments is recognized as a towering genius in his field. His warnings should be heeded by anyone interested in their future security.
“It must be remembered that inflation is not a policy that can last. If inflation and credit expansion are not stopped in time, they result in a more and more accelerated drop in the monetary unit’s purchasing power, and in skyrocketing commodity prices until the inflated money becomes entirely worthless and the whole government-manipulated currency system collapses. In our age, this has happened to the monetary regime of various countries.”
He further warned, “Inflationism is not a variety of economic policies. It is an instrument of destruction; if not stopped very soon, it destroys the market entirely.”
Finally, here are Mises’ comments that apply to the Krugmanites, the progressive politicians and the Washington monetary gang: “Inflationism cannot last; if not radically stopped in time, it must lead inexorably to a complete breakdown. It is an expedient of people who do not care a whit for the future of their nation and its civilization. It is the policy of Madame de Pompadour, the mistress of the French King Louis XV – Apres nous le deluge (after us the deluge).”
We are so far down the road of money creation that the final outcome appears inevitable. Our leaders are clueless when it comes to Professor Mises and his warnings. When a problem arises they inflate all the more. At least a few of us have the opportunity to take him seriously. Many new people are beginning to recognize these dangers. The problem, however, is that as more people abandon the dollar, prices will rise further, thus accelerating the rate of inflation. Any big jump in prices this year will feed the fears of runaway inflation and move it closer.