10.1, Currency changes social pathology and the state

That the value of the currency fluctuates with such volatility is a sign of the unnaturalness of its cause. No people left to voluntary choice would choose as currency something that depreciated or appreciated with such speed.

Aside from that, it is not a mere speculative question of causes. Those causes should take note of the benefit to the already powerful among us and the great cost to those more or less powerless, economically speaking.

I often take my students through a kind of back-of-the-napkin calculation of living costs (it can be eye-opening for those living in a condition of dependency (under parents) and unaware of the costs of their own lives). We start from the median income per household in the United States. That gives us a good sense of what the average household is experiencing. Given the role that the currency plays in being that which is traded for sustenance and necessities the change to its value for those on tight budgets has significant ramifications socially. So, we cut away the taxes (federal, state, local, sales, Social Security), then we portion to transportation, energy, shelter, food. Then we see what, if anything, is left over for future-oriented needs like health-insurance, retirement, college-savings. The further we go in our analysis–adding in considerations like college debt, auto debt, the effort to live in a safer rather than less safe quarter of a community–the bleaker the picture; the more difficult the decision about what to allocate to and what to refrain from. I remind the students that we are considering the average–the bet being that any below have it worse, and any above have some struggle even if it is less, until we find some few for whom such anxiety is not present at all. Those though have the anxiety of preservation, maintenance, protection.

Back to inflation and deflation. What happens when changes to the value of currency work their way down to show up in the prices paid by those on tight budgets? Social pathology. It is predictable that higher levels of all the pathological responses to trouble will increase since the trouble has increased. All of bad responses to conflict, disagreement, anxiety, fear will be on the rise. And it will be at least partially caused by those who are in the role of causing the volatility in the value of the currency.

The most effective way to prepare for future risk is with a store of capital. But if the value of what one stores is artificially reduced, it can be categorized, if brought about by human choice, as the punishment of savers. The disincentive to saving only increases the predictable pathological response to not bein prepared for future risk.

Let us then go to the cause. There is never only one. So, by identifying the cause I mean to locate one of the most influential. First, the cause is those who willing acquiesce to living under monopolistic conditions brought about by state rule. It is these conditions which make it easy for the the monopolist to charge high prices and offer low quality in their services. No social order using currency, where choice existed in the use of currency, would prefer fiat currency. This is always the choice of he who has the right to choose for others and can prevent them from choosing another service provider by operating a territorial monopoly.

Under statist conditions where control of currency production is a state right and only a state may engage in currency production and everyone in the territory must use the currency, what is the incentive to not increase the price and decrease the quality of the good produced? Why should the state not charge more for the dollars and offer less?

A depreciating currency which results in increased prices is precisely what one would expect. So, Roosevelt demanded gold from the citizens at $21.67 an ounce, and promptly increased the price to $35. This was upwards of a 70% decrease in the value of the currency that was at that time backed by gold!

Then, we have a series of intemperate, ostentatious, imprudent expense regimes over the next several decades: WW2, the beginning of the Cold War, the Asian wars (Korea, Vietnam) and the Great Society come to mind. This combination of costly external war an rapidly increasing internal welfare resulted in an excess of printed dollars on the market which those holding chose more and more to trade for gold that the state was still trading for the Roosevelt pegged $35 an ounce. Nixon, seeing the great outflow of gold from the treasury that was only beginning, simply divorced the value of the currency from gold. It became illegal for foreign states to redeem dollars in gold.

Gold now sits at roughly $1800 an ounce. What have those who have devalued the currency and increased social pathology to say for themselves?

And what should he who is looking forward think in attempting to predict what will come? Hume says, in his sagacity, that the best, nay the only, means of predicting the future is the past. And he is right dear reader. But he does not say to predict linear future change. In fact, attention to the past will show the folly in predicting the future to be, linear-ly, like the past. There are season. There are surprises. There is complexity.

But we should first note: the past is a story of rapid depreciation and inflation. That is the habit of he who controls the currency. He has shown little restraint in this regard. There might be conditions that force his hand.

Next, why I think he (who controls currency value) will do all he can to continue the depreciating value of currency and inflationary changes in prices. And then, we’ll see.

Published by Purilib

Anonymously interested in grasping the good life.

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