Inflation Is an Attack on Civilization

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people think of inflation, if they think of it at all these days,
they generally focus on the economic consequences: the potential
loss of purchasing power of their savings and their promises of
future payments, e.g., their pensions. But there are much more serious
consequences which are rarely considered, and almost always only
on those occurrences of hyperinflation.

glue that holds society together, what we call "civilization,"
is an intricate web of relationships and our expectations of those
relationships. They are based primarily on mutual promises and on
the expectation that those promises will be honored on a personal,
local, national, and international basis. In other words, "civilization"
can be thought of as the mutual understandings we have about how
to behave with one another on an individual and institutional basis.

foremost of all promises is the promise to pay: to pay interest
on savings; to pay insurance proceeds, e.g., annuities; to pay rents;
to pay pensions; to repay amounts lent; and so on. But suppose the
monetary unit on which all promises to pay are based, i.e., the
"dollar," becomes impaired. If that impairment is great
enough, then, while promises to pay may be discharged in nominal
terms, de facto they are partially or even wholly reneged.
In this way, expectations are not met, and those who are dependent
on receipt of payment become in great peril, especially if they
are old and cannot replenish.

free market has a solution to maintaining the integrity of promises
to pay: gold-as-money. There are two reasons why the free market
chooses gold-as-money. First, gold-as-money is the most efficient
medium of exchange in terms of minimizing the transaction costs
of transferring wealth geographically and over time. The economic
concept that describes this, which is no longer taught, but does
appear in the writings of Carl Menger, Ludwig von Mises, Antal Fekete,
Murray Rothbard, and some others, is called "marketability,"
or "salability." Briefly, it postulates that as one offers
increasing amounts of a commodity for sale, the commodity for which
the buy/sell spread increases the least is the commodity that is
most suitable for money. That commodity is gold.

gold is the only commodity, with a minor exception being silver,
and silver is inconsequential in the scheme of things, for which
there is more than a year's production supply above ground. For
example, for gasoline, there is but a few week's production supply
above ground, and oil, which is arguably one of the more important
commodities, there is but a few month's supply. For gold, there
is more than 50 years worth of production supply above ground. This
huge overhang results in price stability in terms of gold regardless
of new discoveries or mine shutdowns. No other commodity meets this

fiat money, money that is created out of nothing and without work,
is used worldwide. The reason monetary authorities have gotten away
with this prima-facie fraudulent money is a combination of coercion
(specifically legal tender laws in every nation and restrictions
the IMF has put in place internationally that prohibit member countries
from linking their currencies to gold, and only to gold), misrepresentations,
and nondisclosure of material information. Since the 8th
century in China, every experiment with fiat money has ended in
disaster, many times destroying the middle class, that group that
protects society from the barbarians. To counter this risk and to
protect and preserve our civilization, it is essential that we once
again return to "the standard of every great civilization":

5, 2002

Lawrence Parks (send him mail)
is the author of What
Does Mr. Greenspan Really Think?
is the executive director of the Foundation
for the Advancement of Monetary Education

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