Walter Block and William Barnett II wrote a very good rebuttal to David Frum’s vicious and groundless attack on Ron Paul’s economic acumen. In addition to noting how, under the Fed’s tender care, the dollar today isn’t even worth a plugged nickel, they mentioned some figures regarding how the dollar fared prior to the creation of the Fed. Those figures are instructive, and reveal a cost of inflation that is little remarked in the debates on monetary policy:
Let us compare this with a similar 93-year time period before the creation of the Fed. This calculation shows that "What cost $100.00 in 1820 would cost $63.02 in 1913. Also, if you were to buy exactly the same products in 1913 and 1820, they would cost you $100.00 and $158.69 respectively." In other words, the dollar held its value to a far greater degree under the relatively more free market situation before the advent of the Fed. Indeed, it was worth more at the end of that period than at its beginning. What is so "kooky" about ridding ourselves of an institution that debauches the currency to such a degree, particularly when the free enterprise system has shown money not only need not lose its value but can actually increase in purchasing power?
Growth in the purchasing power of the dollar is exactly what is to be expected of a growing economy, absent inflation. More and more goods and services are available, while the supply of dollars remains the same.
The point to note here is that the economy, not the dollar, is growing. The figures quoted above reflect a nearly 60% growth in the economy over the period.
With today’s technology, economic growth by all rights should be many times what was experienced at the dawning of America’s industrial age. I won’t attempt to estimate the difference, but I trust all will accept it is huge.
Now to the interesting part: What the Fed has actually accomplished is not just eroding the purchasing power of the dollar by over 95%. It has wiped out America’s cumulative economic growth since 1913! That growth should have made today’s dollar worth perhaps thousands of times its 1913 par value.
The moral of the story, of course, is that to focus on the diminished purchasing price of the dollar almost trivializes the actual damage the Fed has caused to America through inflation. Someone more knowledgeable than I can perhaps calculate the magnitude of the disaster.
Be angry. Be very angry.
December 22, 2007
