Swiss Mises Institute

Dienstag, 05. März 2013 von Patrick Barron zu Geld

Send in the Clowns


The Clown

The adverse consequences of fiat money credit expansion keep piling up. Sometimes it seems that almost everything wrong with society today can be traced back to unsound money. I know that I may sound like the heroine's father in the movie "My Big, Fat Greek Wedding", who annoyed his family and friends with his claim that every English word could be traced back to the Greek, but hear me out. The Italians have just given more votes to a new political party, the Five Stars Party, with Beppe Grillo, a professional comedian as its spokesman. Caretaker prime minister Mario Monti, called a technocrat, was punished for attempting to instill some sort of discipline in the Italian budget. The electorate would have none of it. The Slovenians just threw out their prime minister for recommending what has come to be called "austerity", meaning fiscally responsible government. Even the usually responsible Dutch have announced that they will not meet the European Monetary Union's goal of a three percent or less government deficit this year...maybe next year...or maybe never! The new prime minister of Japan has announced that he will appoint a new head of the Bank of Japan based upon the nominee's promise to drive the yen lower and generate more inflation. And in America Fed Chairman Bernanke just testified before Congress that he will keep interest rates at zero until unemployment meets his goal. Monetary responsibility? Ha!

Fiat Money Makes It Appear that Resources Are Unlimited

Fiat money, created in unlimited amounts by national central banks, allows government to claim more resources than under a sound money regime. Over time the public grows to demand more and more from government, knowing that government's ability to print money allows it to confiscate resources and transfer them to special interest groups. Any public concern that printing money might be harmful is ridiculed as a failure to understand its stimulative effect, as proven by Lord Keynes himself. Europe is much further down this road than America, but we are determined to catch up. With the ability of central banks to buy unlimited government debt, the public has grown to look upon any politician who recommends spending restraint as a throwback to the Dark Ages of analog television.

The effect of fiat money's "collective corruption", a term coined by Professor Thorsten Polleit, is to elevate society's time preference. Societal values that reflect the way in which man must act to succeed in the real world are eroded over time. The real world requires savings in order for society to progress. Savings takes time. Keynes' emphasis on aggregate demand would have us believe that consumption is the path to progress. If this is true, why wait? Consume now. Since the central bank can funnel money to government in almost unlimited amounts, it appears that there is no reason to wait. So we constantly hear that the failure of the capitalist economy must be overcome by government action, and any political leader who advises otherwise will be destroyed at the polls. Thus has arisen a new kind of political leader, one whose theory of government matches that of the misled electorate.

Leadership Traits for Sound and Unsound Money Economies

In the two columns below are listed societal values and leadership traits that are appropriate for economies with sound and unsound money.

Values of a Sound Money Economy Values of an Unsound Money Economy
Saving encouraged in the youngSpending encouraged in all age groups
Low time preference required to saveHigh time preference required to spend
Government spending reduces wealthGovernment spending stimulates wealth
Self-reliance celebrated No shame in dependency
War consumes wealth War stimulates wealth
Minimize debtLeverage debt
Private charity encouragedPublic welfare as an entitlement
Private property protectedPrivate property at risk

Sound Money Leadership Traits Unsound Money Leadership Traits
Stable private lifePrivate life is irrelevant
Man of personal achievementAchievement in private life is irrelevant
Restrained, modest demeanorFlamboyant lifestyle
Patient and respectful of others Impatient and disrespectful of others
Age a sign of maturity and wisdomYouth a sign of vigor and willingness to act
Respect for the law Disrespect for the law
FrugalSpendthrift
Resist foreign entanglementsInterventionist overseas


Unsound money elicits a leader who will spend and spend

One can see that the traits required by leaders of a sound money economy are not those that will be accepted by voters in an economy with unsound money. As much as we may desire thoughtful, wise, frugal leadership, the electorate in an economy with unsound money will not accept anyone with those traits. Instead it will desire those leaders who are most willing to exploit ruthlessly the ability of government to increase state spending. Thus, most nations at war eliminate sound money as a war measure, because the electorate will feel the war's expense sooner and, therefore, question the wisdom of continuing. Domestically, citizens in an unsound money economy expect the government to "do something" about helping them get a college education, the house of their dreams, free prescription drugs, and now even free healthcare. If you can dream it, government should provide it! And remember, we need not worry about mundane matters like cost and debt, because all this will take care of itself through the wonders of an expanding economy, stimulated to greater production by government spending of fiat money.

The lesson is clear--wise, frugal, thoughtful leaders need not apply. A comedian leading the largest party in Italy is simply a manifestation of a process that has been at work for some time and is becoming the new norm. Experience, integrity, knowledge, etc. are not prerequisites to leadership. The public desires only a promise to spend...and the more recklessly the better. Unsound money is a blatant attack on economic reality and leads inevitably to the kind of leaders who are best suited for operating in this environment; i.e., fast-talking, glib charlatans with movie-star good looks and low academic, military, and business achievement. We want our leaders to entertain us in good times, placate us in bad times (feel our pain), and tell us that we are not responsible for ourselves...that government will take care of us via social programs that can only be funded by unlimited amounts of unsound money. Until this tyranny of unsound money is removed as a tool of government, we can expect leaders who are as weak and debased as the currency they print.

 

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