Sunday, February 6, 2022

"Where Goes Sound Money"

"Where Goes Sound Money"
by Joel Bowman

"Where goes sound money, so too goes civil society. From drachma debasement in ancient Greece to clipped coinage during the Roman Empire… From the freshly-inked Assignats rolling off the presses in the lead up to the French Revolution… To the hollowing out of the Weimar Republic during the hyperinflationary period of the 1920s... It seems that everywhere we look, monetary pride goes before societal decline… and fall.

Whether denominated in Hungarian Pengos, Polish Zlotys, Brazilian Reals or Venezuelan Bolivars, experiments in monetary hijinks invariably end in tears. From where I sit today, penning these words down here in Argentina’s capital… to the ruinous state of Zimbabwe, once known as Africa’s breadbasket…and now little more than an economic basket case… Literally from A – Z, in countries the world over, history is replete with cautionary tales of what happens when the feds crank up the printing presses.

And yet, “This time will be different!” goes the hoary old cry, urging us to ignore all past and documented experience to the contrary. The question, of course, is Why do we fall for such an obvious ruse, over and over and again? Why do we suppose that the immutable laws of economics will be suspended, in our favor, just this once? Is it arrogance or ignorance that causes us to see ourselves as the precious exceptions to history’s iron-clad rule? Perhaps it’s a bit of both.

As you’ve no doubt read, money printing in the West has gone into hyperdrive in recent years. Just this past week, US national debt crossed the $30 trillion mark. The inflationary effects of such rampant money-printing are already being felt, with prices rising at their fastest rate in forty years. What might this portend for our own future, you wonder? Perhaps a look into the past can provide some clues…

To take just one of the aforementioned examples, that of the French Revolution, the printing presses there were rolling long before heads – royal and otherwise – were. Under Kings Louis XV and King Louis XVI, France had run up enormous debt loads, in part thanks to vast warfare expenditures abroad – including backing America in her own war of Independence – and lavish governmental expenses at home.

Guns and butter, bread and circuses, welfare and warfare…the names on the shopping list change throughout the ages, but the net effect remains the same.

By the 1780s, France’s balance sheet was in tatters. The country’s General Assembly tried tax increases and spending cuts but such austerity measures proved, then as now, unpopular with the masses and so were soon abandoned. By the end of the decade, all honest options having been exhausted, the French did what so many mortals had done before: they looked around for a dishonest one. And they didn’t have to look far.

As the historian Andrew D. White recounted a century later in his book, “Fiat Money Inflation in France”: "Statesmanlike measures, careful watching and wise management would, doubtless, have ere long led to a return of confidence, a reappearance of money and a resumption of business; but these involved patience and self-denial, and, thus far in human history, these are the rarest products of political wisdom. Few nations have ever been able to exercise these virtues; and France was not then one of these few.

No doubt there were impassioned arguments on both sides, for and against money printing. Opponents pointed to historical disasters, such as the 1720 Mississippi Bubble, still relatively fresh in the Frenchmen’s collective memory.

Proponents, meanwhile, summoned that old saw, tried and true, against which so few politicians can hold their ground. This time will be different, they argued, same as always. And so it was that after long deliberation, the General Assembly agreed to a round of money printing…juste cette fois “just this once,” they’d have told themselves.

The bills, Assignats, were to be backed by Church property…especially confiscated for this very purpose. And so, like magic, 400 million of them were put into circulation. And for a while, the old elixir seemed to do the trick. Commerce picked up, confidence rose and people got to work spending their newly inked notes. Oh, to be alive in the Summer of 1790, France! ‘twas surely the place to be!"

Cometh the Fall: By the time the leaves had turned from green to yellow, economic activity had begun to slump and, along with it, the hopes of the monetary conjurers and printing press prestidigitators. And then, sure as one season follows the next, “The old remedy immediately and naturally recurred to the minds of men,” observed White, “Throughout the country began a cry for another issue of paper.”

Rather than admit they had made a mistake – borrowing from the future that which the present had not yet earned – the General Assembly did what all such assemblies of men in their position do: they doubled down on their devilish deed. It was not the money-printing itself that was to blame, they rationalized, but rather the magnitude of issuance. 400 million units was simply not enough to stoke the embers and get the fire going again. Perhaps another round would help…

But by then, the fix was in. The conversation has shifted from “to print, or not to print?” to “how much should be printed?” And so, the presses were cranked up once again, and the newly-inked bills were sent forth across the land… 300, 400 and 600 million units at a time…

Here again Mr. White describes the scene: "The consequences of these over issues now began to be more painfully evident to the people at large. Articles of common consumption became enormously dear and prices were constantly rising. Orators in the Legislative Assembly, clubs, local meetings and elsewhere now endeavored to enlighten people by assigning every reason for this depreciation save the true one. They declaimed against the corruption of the ministry, the want of patriotism among the Moderates, the intrigues of the emigrant nobles, the hard-heartedness of the rich, the monopolizing spirit of the merchants, the perversity of the shopkeepers, - each and all of these as causes of the difficulty."

And this was only the beginning. Where sound money had gone, civil society was about to follow… "Slowly at first, then all of a sudden, peaceful protests turned violent, and angry mobs began smashing shopfronts and setting fire to businesses. A jilted peasantry thronged the cobblestones, demanding their daily bread, the price of which was cast adrift, afloat on an ever-rising tide of new money."

By the time King Louis XVI received the guillotine’s closest shave, in 1793, there were some 3.5 billion assignats in circulation. When his wife, Marie Antoinette, lost her own head later that same year, the price of her infamous cake was far beyond the reach of most peasants…

One wonders, when surveying the present-day landscape… with mobs again marching in the street, demanding their just deserts and decrying economic inequality, what role money printing has played in the current malaise. Back in the early days of the pandemic, protestors erected a not-so-subtle guillotine blade out front of Jeff Bezos’ gilded gates. Mr. Bezos’ wealth has grown considerably over the past couple of years, even as the lot of the lumpenproletariat has remained the same. But the symbolism is as dull as the protestors’ collective imagination. As far as we know, the Amazon CEO didn’t print any money, even if an inordinate amount of it did flow up his river.

Had the protestors read their history, they might be inclined to remove their instrument of capital punishment to the nation’s capital, and there stand it out front of the Federal Reserve building, whence the flood of new scrip gushes. Then again, if they really did know the story, they would know too that after the royal heads did roll, it was the Jacobin revolutionaries themselves whose necks were next on the block.

Where goes sound money, indeed…"
where are you now that we need you?
Freely download "A Tale Of Two Cities", by Charles Dickens, here:

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