Inflation Destroys the Fabric of Society

Alan Greenspan has been chairman of The Federal Reserve Board for the past 18 years. He will retire with full honors despite the fact that his tenure has seen our money supply grow continuously and the dollar fall in value. 18 years ago the Consumer Price Index was 109.6. Today it has reached 191. What you could buy for a dollar 18 years ago would take $1.74 today. This is the Greenspan heritage that the media considers a success. Of course he did not accomplish it alone. It required the complicity of the collection that rules us, a spendthrift gang with a doomed plan (or lack of plan) to police the world.

Webster’s (1983) defines inflation as an increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined. It is not defined as the increase in prices but as the increase in the supply of money that causes the increase in prices.

Consider what inflation does. The government issues new money, i.e., raises funds without taxing or borrowing. To the government, this is pure gain. As the new money works its way through the economy, prices rise. The first receivers of the new money gain at the expense of the later receivers. "Inflation, then, confers no general, social benefit; instead it redistributes the wealth in favor of first comers . . ." Those stuck with the loss include fixed income groups, ministers, teachers, people on salaries, those on fixed money contracts made before the price rise, life insurance beneficiaries, retirees, landlords with long term leases, bond holders and other creditors, and those holding cash.

Business calculation becomes more difficult. Prices do not change uniformly or at the same speed; it becomes harder to separate the lasting from the transitional, to guess the demands of consumers. Business accounting may seriously overstate profits, "may even consume capital while presumably increasing investment."

The seeming sellers market leads to a declining quality of goods and services, since consumers resist price increases less when they are concealed by less quality. Quality of work declines as people go for "get rich quick" schemes and scorn sober effort. Thrift is penalized and debt encouraged, since debt is paid off in lower valued money.

"Inflation then, lowers the general standard of living (think of that 57 cent dollar) as it creates an atmosphere of prosperity." More importantly, over time it destroys the fabric of society. Thomas Mann's short story Disorder and Early Sorrow describes an afternoon in the life of a middle class German family that is failing due to collapsed standards caused by the existing inflation. That family lived in a society that evolved into Nazism. It is not hard to find a parallel between it and our easy money, morally sloppy society.

Families and communities continue to fail. The media emphasizes corporate misdeeds over government corruption even though it is hard to find any reason to trust politicians or government bureaucrats. At least not all chief executive officers are crooked, something one cannot be sure about in government. While Greenspan cannot be held responsible for all this, a milieu has been created that he exemplifies, in which he stands out. Although not as contemptible as the sharpshooter who killed the woman with the baby in her arms at Ruby Ridge, he is on a par with the authorities who found themselves unable to discipline the sharpshooter, but felt obligated to honor him.

January 7, 2005

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