"The Culture of Devaluation and Destruction"

"America Has Amnesia"

by Brian Maher

"As we have claimed before - citing Chesterton: Civilization “decays by forgetting obvious things.” Yet we are absentminded. And we have forgotten that obvious lesson. Today it is time to remember… again. It is time to remember, for example, that the free lunch has no existence…That a nation hopelessly indebted is a nation hopelessly enchained…That money and wealth are not synonyms…That savings form the granite foundations of wealth…And that a man must produce before he can consume.

In reminder, Mr. John Tamny, editor of RealClearMarkets: "Savings and investment, not consumption, are the true drivers of economic growth. Entrepreneurs cannot innovate, and companies can’t grow or be founded without savings first. There’s no getting around this truth…"

Just don’t expect to hear this simple truth from most any economist. Deep believers in the religion that is consumption, they can’t see that the latter is the easy part. That what really powers growth is the capacity to save the fruits of one’s production so that workers can produce (and ultimately consume) even more. It is obvious. Yet the nose on a man’s face is obvious. He forgets it nonetheless.

Let us recall - once again - Say’s Law. Say’s Law is the iron law of economics demonstrating that supply creates its own demand. “Products are paid for with products,” argued Jean-Baptiste Say over two centuries ago. His law has yet to be overturned, despite the fevered efforts of Lord Keynes and his countless disciples.

Consider a familiar example: One man produces bread. Another produces shoes. Let us assume the baker bakes a baker’s dozen - 13 loaves of bread. Three of them go upon his dinner table, then into his family’s bellies, consumed. The remaining 10 loaves represent his savings. He can hold them out against other goods he needs… shoes in our little example.

Meantime, the cobbler cobbles together 13 pairs of shoes. He places one new pair upon his blistered and aching feet. He places two additional pairs upon his children’s growing feet. This fellow “consumes” three pairs of shoes, that is. The remaining 10 constitute his savings. Like our baker, he can exchange his shoes - his savings - for other goods he requires. In our example he requires bread. Each exchanges money to fetch him his goods - direct barter is primitive. But we invite you to lean in for a closer examination, to squint your eyes a bit, to concentrate your attention.

You will now see the transaction in its true aspect. You will see that money merely throws an illusory veil across the exchange. You will see that the baker ultimately purchases his shoes with the bread he has baked and that the cobbler ultimately purchases his bread with the shoes he has cobbled.

Concludes Monsieur Say: "Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found that one kind of commodity has been exchanged for another."

We must conclude that there can be no excess of savings. Savings equal stored wealth. To argue that savings injure society is to argue that wealth injures society. Only an economist from the Ivy League can argue it. And savings spring from production as the fruit springs from the seeds.

Yet the consumptionists would turn Say’s law upon its head. They sob not about a lack of production but a “lack of demand.” They believe government must race the printing press to make the shortage good, to furnish the lack. But no new production accompanies the blitz of money. The additional money merely chases the existing stock of goods. That is, the money-printers place the wagon cart of consumption before the draft horse of production. Yet the horse must go in front. The cart does not tug the horse.

In brief, Say’s Law will not be stricken from the economic law books. And as we have also argued before…When society saves, it is not eliminating consumption. It is merely delaying it. It represents a future bird in a future hand. The demand that is supposedly lost is not lost at all. It is simply shifted away from the present… and toward the bountiful future.

By reducing consumption today… society consumes more tomorrow. By increasing consumption today, society consumes less tomorrow. It devours the seed corn. Or according to Henry Hazlitt, author of the classic "Economics in One Lesson": “Saving, in short, in the modern world, is only another form of spending.” More from whom: "From time immemorial proverbial wisdom has taught the virtues of saving, and warned against the consequences of prodigality and waste."

We have forgotten this immemorial wisdom. It is time to remember…Below, Jeffrey Tucker shows you how inflation wrecks the foundations of a sound economy, and how it poisons society. Read on..."

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"The Culture of Devaluation and Destruction"

By Jeffrey Tucker

"On February 3, 2020, the M2 money supply stood at $15.3T. As of March 2022, it stood at $22T. That’s a 43.7% increase in a mere two years. And contrary to what is being advertised, there is no real evidence of a current tightening beyond some small perfunctory moves. This is a monetary experiment we’ve not seen in the US since colonial times, when worthlessness was measured against the most worthless thing of all, the Continental currency.

What the Fed did in 2020-21 is truly beyond belief, straight out of the crudest medieval playbook on how to expand the state by depreciating the currency. It was no better than coin clipping. It went as follows.: Governments smashed economic activity. When that happens, the result is: economic activity is smashed. It creates an artificial and pretty-well instantaneous depression. That’s exactly what happened, but the administrative state and the politicians didn’t want to face this reality. So they turned to the magic of redistribution.

In other words, they just wrote legislation that spent $1.7T, then more, then more, then $6T at least, and, by some estimates, more than twice that amount overall. Obviously, that money was not in the US Treasury, so what to do? Well, obviously: issue debt. Nothing unusual about that. Same thing happened in 2008, without obvious damage to the average person.

What was radically different this time (I’m not sure anything like this has happened in US history) is that the Congress authorized the money to be dropped helicopter-style straight into the bank accounts of businesses, nonprofits, and consumers. You probably saw this and wondered why the heck they were doing this. It was all about keeping up the appearances of prosperity even as economic activity was being crushed. Now we’re seeing the results.

The current inflation crisis is every bit as bad as it was in 1979-1980. The circumstances are slightly different, of course, but the underlying causes are similar. Back then we had price controls that exacerbated price pressure. Today we have post-lockdown supply-chain breakages that are artificially reducing the availability of goods.

Still, in the end, it’s all about the money. The notion that this ends smoothly is utterly ridiculous. What’s more, at this point, the Fed is not necessarily in control. Velocity statistics show there is tremendous potential for far more inflation in our future. Banks don’t control that. People do.

And we are already starting to see a shift in spending patterns. The savings rate keeps falling as consumers and businesses spend down the assets they socked away for two years. Gross private savings is lower today than before lockdowns. Personal savings is running 6.2% from a high of 33%. The money is running out and now personal debt is on the rise: a large increase of the trend in 2021 and following.

Now, you could say that maybe this is smart: take out the loan and pay it back in cheaper dollars due to inflation. Perhaps, but more likely this is too clever by half. The actual reason is more simple: people need the money to sustain a lifestyle in the face of growing pressure from all ends. It’s not absolutely crazy to speculate on the worst possible outcome: the death of paper money.

We’ve been there before, many times and many places. We can look back at the historical cases and marvel at the stupidity of the money masters for having allowed such a thing. And yet, it is not obvious to me that we have brighter bulbs at the helm in the U.S. and the EU today.

What these people have done is utterly crazy. In an important sense, it’s the sign of a civilization that’s forgotten where its prosperity originated.

All societies are born desperately poor, fated to live off foraging and just getting by. Prosperity is built through the construction of capital, which is the institution that embodies forward thinking. To make capital requires the deferral of consumption: you have to give up some today in order to make tools that enable more consumption tomorrow. This means discipline and a future orientation. And it means, above all, savings that can be invested in productive projects. Only through that path can societies grow rich.

A key component of this concerns the stability of the medium of exchange. And not just stability: a currency that rises in value over time incentivizes saving and thus investing for the long term. The late 19th century provided a good example of this. Under the gold standard, money grew more valuable over time, thus rewarding long term thinking and instilling that outlook in the culture at large.

Inflation has the opposite effect. It punishes saving. It forces a penalty on economic behavior that is future oriented. That means also discouraging investment in long-term projects, which is the whole key to building a complex division of labor and causing wealth to emerge from the muck of the state of nature.

Every bit of inflation trims back that future orientation. Hyper inflation utterly wrecks it. Living for the day becomes the theme. Taking what you can get now is the method and the theme. Grasping and spending. You might as well because the money is only going down in value and goods are in ever shorter supply. Better to live hard and short and forget the future. Go into debt if possible. Let the devaluation itself pay the price.

Once this attitude becomes instilled in a prosperous society, what we call civilization gradually devolves. If inflation persists, this kind of short-term thinking can wreck everything. This is why inflation is not just about rising prices. It’s about declining prosperity, the punishing of thrift, the discouragement of financial responsibility, and a culture that gradually falls apart.

Another factor in reducing time horizons is legal instability. This was my first concern when the lockdowns began 28 months ago. Why would anyone start a business if governments can just shut it down on a whim? Why plan for the future when that future can be wrecked by the stroke of a pen?

There is a connection here with the huge rise in petty theft and real crime across the country. Stealing and hurting others reflects short time horizons. It is about getting something now, regardless of decency and morality. In that way, monetary devaluation has a relationship to the rise in crime.

Brent Orrell reports on the economic literature: Enter criminologist Richard Rosenfeld - a professor emeritus at the University of Missouri-St. Louis who has spent the better part of the last decade researching explanations for U.S. crime trends. In 2014, Rosenfeld proposed a new answer to the “Great Recession paradox” that focused not on unemployment or inequality but on inflation.

Similar to the recession of 2008-10, the Great Depression saw an increase in unemployment and a drop in crime rates in the context of steep deflation. By contrast, in the 1970s, when inflation and unemployment took hold at the same time - the era of “stagflation” - crime rates rose. Inflation, not general economic hardship, appeared to be the culprit behind rising crime.

Rosenfeld’s follow-up research on inflation and crime has supported his initial conclusion. In 2016, he found that only inflation had consistent and robust short- and long-term effects on national property crime rates. In 2019, he reported that those results could be extended to the city level, once again confirming that inflation has significant effects on property crime rates. And this year, he published a new paper showing a significant association between inflation and homicide rates, especially in more economically disadvantaged communities.

Many people had assumed that this new path would be short lived. Surely the politicians would wise up and stop the madness. Surely! Tragically, it got worse and worse. The spending and printing began and ramped up over time. It was a perfect storm of sheer madness, and now we are paying the highest possible price. To realize a brighter future, we must remember our past."

- dailyreckoning.com