This article was originally published by George Ford Smith at The Mises Institute.
Peace on earth is a wish that gets extra emphasis this time of year. We’re told to pray for it, wish for it, and keep it forever in our minds. So why don’t we have it?
The short answer is money. War is profitable to some. It’s profitable enough that profiteers in private industries influence the government, which stays home and orders others to do the fighting. War costs money. Where does the government get it? Visible taxes (income, corporate, and payroll) cover about two-thirds of government revenue. The rest comes from borrowing and inflation.
In the US, the central banking cartel known as the Fed stands ready to fund almost anything the government wants, especially wars. The Fed does this by creating money from nothing and buys government debt instruments, the accounting name for which is “assets.” The destruction of the dollar is the residue from the “asset”-buying sprees of the Fed’s Federal Open Market Committee, an operation which its members and most of the economics profession insist is necessary for a prosperous economy—and to keep the bad guys at bay in obscure places on the planet.
Government can’t supply bombs to proxy warlords using tax money alone. Outlays in the hundreds of billions must be stolen surreptitiously, which is why the government created a central bank and a bought-and-paid-for economics profession. No matter the propaganda spewed by its lapdog media, taxpayers will eventually make the connection between war and a cheaper dollar.
History and theory prove we don’t need a committee cranking up the money supply to make the price of money more appealing, and in a free market, increases in the money supply come about from the usual profit and loss forces. A miner brings money to the market as a hat maker brings hats, neither one violating anyone’s property rights. But a committee such as the FOMC doesn’t go mining à la the Seven Dwarfs to bring something people want to the market. That’s way too restrictive. Far better to create the money as a child would while playing make believe.
The Fed—as the federally certified monopoly counterfeiter—performs the child’s magic. In doing so, it steals wealth. Nothing is exchanged for something.
Surely, I must be wrong
To suggest the economics profession supports a monopoly counterfeiting operation to run the economy is too ludicrous to accept. It would mean the government works against our interests. It would mean the government is our enemy. There must be more to the story. There has to be.
Allow me to quote directly from a primary source, in this case, one of the most controversial Federal Reserve chairmen in recent history. Ben Bernanke, chairman from 2006 to 2014, summa cum laude at Harvard, PhD at MIT, Time Person of the Year in 2009, awarded the Nobel Prize in Economic Science in 2022, and now serving as an economist for the Brookings Institution and advisor for the financial services firm Citadel—made this speech before the National Economists Club in Washington, DC on November 21, 2002, which he entitled Making Sure “It” Doesn’t Happen Here. You might want to read this passage twice, as it’s so off-the-wall your inner economist might find it impossible to digest:
[T]he US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
“Of course,” he continues, “the US government is not going to print money and distribute it willy-nilly…“ He’s right. The government—or the Fed as its assigned counterfeiter—ensures that “Willy” doesn’t get the newly-printed money until much later, after it’s circulated through the economy and put upward pressure on prices and downward pressure on Willy’s real wages, sucking the purchasing power from his wallet. The first ones to get the new money benefit because it arrives immediately, too soon to affect price levels. Call them “the favored few.” Call them “connected.” Call it the government. Call this the Cantillon Effect, and see Jonathan Newman’s graphical expression of the subterfuge in four charts.
The “It” in Bernanke’s title refers to “the danger of deflation, or falling prices.” Since deflation increases the purchasing power of the monetary unit, it’s puzzling that an economist of Bernanke’s stature would find that objectionable.
Moore’s Law has been a deflationary phenomenon since it was first identified in 1965—thirty-seven years before Bernanke’s speech—and has led to the proliferation of tech throughout the economy. Among other things, it has meant businesses and individuals can buy more for less—certainly a key indicator of prosperity. And he regards this as a danger?
But he later expands his definition of deflation to mean “a general decline in prices, with emphasis on the word ‘general.’” Using his general understanding, he says:
The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand—a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.
The economy-wide aggregates Bernanke describes are an instance of “credit expansion and its tampering with the free-market rate of interest,” Rothbard explains. Projects thought to be profitable turn out not to match consumer demands. Thus, we see firms slashing prices to save themselves. The cure is not deficit spending but to let the free market breathe “to make most efficient use of the existing stock of capital.”
Since an inflation-driven economy benefits debtors at the expense of creditors, but debtors will sleep better knowing Bernanke and his subsequent replacements are certified fiat-money inflationists, making sure “It” never, ever happens here. For details, see the BLS inflation calculator.
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