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"One difficulty about prescribing for inflation is that we
don't entirely know how serious the disease is…..The argument made by
those who demand very low rates [of inflation] has simply been
inconclusive." (Paul McCracken, former Chairman of the Council of Economic Advisors.)
Let's scrutinize the above statement…
The history of civilization is, in reality, the history of a series
of societies, or nations, as you might call them. The people in each
nation have come under the control of the leaders of a state or
government by force or by vote. In either case, the leaders of the
country (with the cooperation of the bankers) have always and in every
case found it necessary to increase their funds beyond the amount they
could collect through taxation. This is almost always done through some
form of currency debasement.
Whether the state borrowed from banks and monetized the debt,
clipped coins, or simply ran printing presses to print new issues of
notes, the results have always been the same: rising prices. As the
state monetized debt and consumed the products and services purchased
with those I.O.U.'s, the community as a whole was deprived of that
production.
The fact that the community felt it was receiving tangible wealth
back in the form of "money" only served to confuse it. In the end, the
confusion that resulted from this illusory wealth caused a fatal cycle
of events that ultimately ended in the collapse of each of those states.
If you, as an individual, borrow money from someone and never repay
that person, you have stolen from him. You are a thief. He is worse
off; he has lost some of his wealth. When a state monetizes debt either
by printing bank notes directly or by borrowing such notes from a bank
without intention of repaying, it is just as much a thief of the
society. The difference is that the victim becomes twice remove from his
enemy. He can't tell by whom he has been victimized.
The real loss falls on the population as a whole, and in such a
camouflaged pattern that the results defy surface analysis. In other
words, the theft is translated into rising prices, and the rising prices
do the dirty work. When the victim feels the threat and tries to
protect himself, he usually flails out at the symptom rather than the
cause. The theft occurs when a person borrows money and does not repay
it. The symptom is the rising price. As the individuals in society
attempt to react to the symptom (rising prices), the trouble begins.
When the Congress votes to increase the national debt, as they have
done periodically for years, how do you feel? Do you realize that what
they're doing is borrowing money directly from you with no intention of
ever paying it back (Borrowing it from you, if you're a producer. of
course, if you're on welfare or unemployed, you have nothing to lend
them.)
Would you consider loaning someone money knowing that they had a
long history of debt repudiation, and know that you may not agree with
what they will do with the money once they've borrowed it? Of course,
you wouldn't. But you're doing it anyway.
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The most staggering revelation to come from a study of the economic
history of past societies is that the sequence of economic events in
the United States during the past fifty years has occurred repeatedly in
dozens of other societies stretching as far back as early Macedonia:
The above scenario has been repeated in almost every society where
the state has debased the currency. Everyone who is concerned about
preserving his wealth should read Fiat Money Inflation In France by
Andrew Dickson White. It is a classic chronicle of the effect that fiat
money had on the economy of France subsequent to the French Revolution.
The parallels between France in 1789 and the U.S. in the 20th century
are both obvious and frightening.
One has to wonder if President Roosevelt had ever studied the
histories of countries that tried outlawing gold and inflating the money
supply to solve their temporary economic problems. When he said, "it's
all right; after all, we're borrowing from ourselves," had he heard of
Macedonia, or the French economy of 1789? And what of President Nixon?
When he instituted price controls, where were the scientists who
said, "Let's observe the past before we act." If the saying is true that
history repeats itself, could it be because no one consults history
before they act? For Dr. McCracken to say that we don't really know of
the seriousness of the disease called inflation is totally absurd. The
disease is fatal.
Regards,
John A. Pugsley
for The Daily Reckoning December, 1974 |
Friday, January 31, 2014
The Establishment Smokescreen
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