Contra and Pro Bonner

by Ira Katz
by Ira Katz

I admit to being an avid reader of LRC. In fact, dragging my computer into bed to read LRC is usually the first thing I do in the morning. My favorite contributor is Mr. Bill Bonner. His humor tinged with a pessimistic dread of the future is thoroughly entertaining, not to mention informative. However, I have a quibble with something he wrote recently in regard to the starting date for the great confiscation of wealth through inflation by the federal government of the United States. In his piece George Best, RIP he wrote:

Looking at a chart of the dollar is like looking at an EKG of a dying man. From 1800 until 1935 the lines go up and down. A dollar bought a dollar's worth of goods and services in 1800...in 1850...in 1900...and up until about 1935. At that point, the line begins to fall. It does not rise again. Instead, each and every year it loses purchasing power, so that by 2005 the 1800 dollar is only worth about 5 cents.

So Bonner puts the date at 1935, the culprit being that archfiend Roosevelt. Certainly he would be present on my Mount Rushmore of pillage. Lincoln (introducing the greenback and so much more!) and Nixon (breaking the last link to gold) belong up there. And if we allow for others besides presidents, our Maestro Greenspan deserves recognition. But the number one pillager is President Woodrow Wilson, the great fuddy-duddy, holier-than-thou destroyer of civilizations. It was under his watch that the Federal Reserve Bank was created.

Consider the CPI data from EH.net (Economic History) plotted below. It gives the equivalent current dollars to a dollar in 1790. Thus, as the number goes up the value of the dollar goes down. A word of caution as to the accuracy (or value) of economic statistics such as these is necessary even for readers of this site. I have seen several attempts to measure inflation, all of them lacking in many ways. But all of them agree on the issue at hand. While the destruction of value after 1935 is of monumental proportions, we Austrian economic devotees know the mechanism. In the details of the data we note that over the 123 years between 1790 and 1913 the lowest value of $1.78 occurred in 1865 after the greatest war and destruction of our history. But after the Fed, in the peace and prosperity of 1921, the value collapsed to $2.18. In the midst of the depression the value did pick up to $1.49 in 1935 in spite of the attempts of the Fed to inflate. And of course, as it is said, the rest is history.

But I cannot write about Mr. Bonner’s work without giving an example of how much I agree with him. In The Tyranny of the Living he writes:

The trouble with the news is that it is impossible to know what is important when you must rely solely on the judgment of people who happen to be breathing. The living can imagine no problems more urgent than the ones they confront right now, and no opportunities greater than the ones right in front of them. We prefer the obituaries.

As a student in high school and college I used to make a point of reading the paper, in detail, every day. I eventually realized that it was a waste of time. I had friends who worked for USA Today, for the only useful section, the sports. In the newsroom a television was always tuned to CNN. They told me that the news does not change in 30 minutes. It occurred to me that it also does not change in 24 hours. Most of the stories on major events literally say nothing new. If one also considers the fact that most newspaper writing itself is terrible and infused with ignorance, it is not difficult to reach the conclusion that reading the paper is a waste of time. I quit reading the newspaper cold turkey. I have often tried to explain my decision to others. I am trained as an engineer so my explanation has a technical nature. The news is a measurement of history where the frequency of sampling the signal is at such a high frequency as only to perceive the noise. It is much more important to understand the lower frequency scales of years, decades, generations, and centuries. So now I generally just read books, a few quarterly periodicals, and, of course, LRC (which has so much wisdom that it can be read daily). But even for books, my guideline is to only read those written at least 50 years ago. I will end this piece with a quote from one of those old books, Remembrance of Things Past (or In Search of Lost Time?) by Marcel Proust, (translated by Moncrieff, Random House, v.1, p. 20)

"I say!" exclaimed Swann to my grandfather, "what I was going to tell you has more to do than you might think with what you were asking me just now, for in some respects there has been very little change. I came across a passage in Saint-Simon this morning which would have amused you. It is in the volume which covers his mission to Spain; not one of the best, little more in fact than a journal, but at least it is a journal wonderfully well written, which fairly distinguishes it from the devastating (sic) journalism that we feel bound to read these days, morning, noon and night."

"I do not agree with you: there are some days when I find reading the papers very pleasant indeed!" my aunt Flora broke in, to show Swann that she had read the note about his Corot in the 'Figaro.'

"Yes," aunt Celine went one better. "When they write things about people whom we are interested."

"I don't deny it," answered Swann in some bewilderment. "The fault I find with our journalism is that it forces us to take an interest in some fresh triviality or other every day, whereas only three or four books in a lifetime give us anything that is of real importance. Suppose that, every morning when we tore the wrapper off our paper with fevered hands, a transmutation were to take place, and we were to find inside it – oh! I don't know; shall we say Pascal's 'Pensees?'"

November 28, 2005

Ira Katz [send him mail] teaches mechanical engineering at Lafayette College.  He is the co-author of Handling Mr. Hyde: Questions and Answers about Manic Depression and Introduction to Fluid Mechanics.

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