Keynes, Lenin, and Hyperinflation

In 1919, John Maynard Keynes became an international figure of considerable influence because of his book, The Economic Consequences of the Peace. It was a critique of the Versailles Treaty’s imposition of reparations payments on Germany in the aftermath of World War I.

In that book, Keynes made the following observations.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers’, who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the value of [amazon asin=1479368709&template=*lrc ad (right)]the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.

This became one of the most widely quoted statements from the book. Yet the book really was not about inflation, Lenin, and the destruction of capitalism. But the quotation was simply too good to resist for defenders of the traditional gold standard.

[amazon asin=1604190442&template=*lrc ad (left)]Beginning in the 1970’s, the authenticity of the quotation from Lenin was called into question by a series of economists and historians. There is no reference to this in Lenin’s collected works. The hostility to the gold standard is so great, that this is one time that Keynes was called into question by his academic acolytes. If it is a question of attacking the gold standard or calling Keynes into question, Keynesians are willing to call Keynes into question. First things first.

Yet it turns out that Keynes was right, and the critics of Keynes on this one particular point have been wrong. Lenin said far more than the brief extract attributed to him by Keynes. Lenin made it very clear why he believed that inflation will ultimately destroy capitalism. He was overseeing the process of this destruction, and his use of paper money was central in his organizational plans. Here is what he said:

Hundreds of thousands of rouble notes are being issued daily by our treasury. This is done, not in order to fill the coffers of the State with practically worthless paper, but with the deliberate intention of [amazon asin=B00C1M0S4S&template=*lrc ad (right)]destroying the value of money as a means of payment. There is no justification for the existence of money in the Bolshevik state, where the necessities of life shall be paid for by work alone.Experience has taught us it is impossible to root out the evils of capitalism merely by confiscation and expropriation, for however ruthlessly such measures may be applied, astute speculators and obstinate survivors of the capitalist classes will always manage to evade them and continue to corrupt the life of the community. The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort.

Already even a hundred-rouble note is almost valueless in Russia. Soon even the simplest peasant will realise that it is only a scrap of paper, not worth more than the rags from which it is manufactured. Men will cease to covet and hoard it so soon as they discover it will not buy anything, and the great illusion of the value and power of money, on which the capitalist state is based will have been definitely destroyed.

[amazon asin=1586489941&template=*lrc ad (left)]This is the real reason why our presses are printing rouble bills day and night, without rest.

This statement was reprinted in an article by a pair of economists, Michael V. White and Kurt Schuler, who included it in their article, “Who Said ‘Debauch the Currency’: Keynes or Lenin?” It was published in the Journal of Economic Perspectives, Volume 23, Number 2 (Spring 2009), p. 217. This is a publication of the American Economic Association. The article is online.

The reason why scholars did not find it in the collected works of Lenin is that this was reported in newspapers at the time. The authors of the journal article describe this article. “A report of an interview with Lenin was published on April 23, 1919, by the Daily Chronicle in London and the New York Times. Dated April 22 and cabled from Geneva, the article claimed to be based on ‘authentic notes of an interview with Vladimir Ulianoff Lenin, the high priest of Bolshevism, which were communicated to me by a recent visitor to Moscow.'”

Because the author of the article was not identified, skeptics may decide to criticize it as a hoax. But Lenin never indicated that it was a hoax, nor did he challenge Keynes’s summary statement. He commented on Keynes’ book in 1920, but he did not single out Keynes’ statement as a misrepresentation.

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