In 1919, John
Maynard Keynes became an international figure of considerable influence because
of his book, The Economic Consequences of the Peace. It was a critique
of the Versailles Treaty’s imposition of reparations payments on Germany in the
aftermath of World War I.
In that book,
Keynes made the following observations.
Lenin is said
to have declared that the best way to destroy the capitalist system was to
debauch the currency. By a continuing process of inflation, governments can
confiscate, secretly and unobserved, an important part of the wealth of their
citizens. By this method they not only confiscate, but they confiscate
arbitrarily; and while the process impoverishes many, it actually enriches
some.
The sight of
this arbitrary rearrangement of riches strikes not only at security, but at
confidence in the existing distribution of wealth. Those to whom the system
brings windfalls, beyond their deserts and even beyond their expectations or
desires, become ‘profiteers’, who are the object of the hatred of the
bourgeoisie, whom the inflationism has impoverished, not less than of the
proletariat. As the inflation proceeds and the value of the currency fluctuates
wildly from month to month, all permanent relations between debtors and
creditors, which form the ultimate foundation of capitalism, become so utterly
disordered as to be almost meaningless; and the process of wealth-getting
degenerates into a gamble and a lottery.
Lenin was certainly right. There is
no subtler, no surer means of overturning the existing basis of society than to
debauch the currency. The process engages all the hidden forces of economic law
on the side of destruction, and it does it in a manner which not one man in a
million is able to diagnose.
This became one
of the most widely quoted statements from the book. Yet the book really was not
about inflation, Lenin, and the destruction of capitalism. But the quotation
was simply too good to resist for defenders of the traditional gold standard.
Beginning in
the 1970′s, the authenticity of the quotation from Lenin was called into
question by a series of economists and historians. There is no reference to
this in Lenin’s collected works. The hostility to the gold standard is so
great, that this is one time that Keynes was called into question by his
academic acolytes. If it is a question of attacking the gold standard or
calling Keynes into question, Keynesians are willing to call Keynes into
question. First things first.
Yet it turns
out that Keynes was right, and the critics of Keynes on this one particular
point have been wrong. Lenin said far more than the brief extract attributed to
him by Keynes. Lenin made it very clear why he believed that inflation will
ultimately destroy capitalism. He was overseeing the process of this
destruction, and his use of paper money was central in his organizational
plans. Here is what he said:
“Hundreds of thousands of rouble
notes are being issued daily by our treasury. This is done, not in order to
fill the coffers of the State with practically worthless paper, but with the
deliberate intention of destroying the value of money as a means of payment.
There is no justification for the existence of money in the Bolshevik state,
where the necessities of life shall be paid for by work alone.
Experience has taught us it is
impossible to root out the evils of capitalism merely by confiscation and
expropriation, for however ruthlessly such measures may be applied, astute
speculators and obstinate survivors of the capitalist classes will always
manage to evade them and continue to corrupt the life of the community. The
simplest way to exterminate the very spirit of capitalism is therefore to flood
the country with notes of a high face-value without financial guarantees of any
sort.
Already even a hundred-rouble note
is almost valueless in Russia. Soon even the simplest peasant will realize that
it is only a scrap of paper, not worth more than the rags from which it is
manufactured. Men will cease to covet and hoard it so soon as they discover it
will not buy anything, and the great illusion of the value and power of money,
on which the capitalist state is based will have been definitely destroyed.
This is the real reason why our
presses are printing rouble bills day and night, without rest.
This statement was reprinted in an
article by a pair of economists, Michael V. White and Kurt Schuler, who
included it in their article, "Who Said 'Debauch the Currency': Keynes or
Lenin?" It was published in the Journal of Economic Perspectives,
Volume 23, Number 2 (Spring 2009), p. 217. This is a publication of the
American Economic Association. The article is online.
The reason why scholars did not find
it in the collected works of Lenin is that this was reported in newspapers at
the time. The authors of the journal article describe this article. "A
report of an interview with Lenin was published on April 23, 1919, by the Daily
Chronicle in London and the New York Times. Dated April 22 and
cabled from Geneva, the article claimed to be based on 'authentic notes of an
interview with Vladimir Ulianoff Lenin, the high priest of Bolshevism, which
were communicated to me by a recent visitor to Moscow.'"
Because the author of the article
was not identified, skeptics may decide to criticize it as a hoax. But Lenin
never indicated that it was a hoax, nor did he challenge Keynes's summary
statement. He commented on Keynes' book in 1920, but he did not single out
Keynes' statement as a misrepresentation.
IS THE OBSERVATION CORRECT?
The hyperinflations that occurred in
Germany, Austria, and Hungary in the early 1920's did not destroy capitalism.
They certainly dispossessed investors and bonds, life insurance policies, bank
accounts, and other investments that were tied to the value of the respective
fiat currencies. Other capitalists prospered, however. Anybody who had
purchased real estate by means of a mortgage, or any farmer who had operated
his farm by means of money borrowed from a bank, benefitted greatly. There were
winners and losers, but more losers than winners.
Except during wartime, and except in
the immediate aftermath of the lost war, only one Western nation has ever
indulged in hyperinflation: the state of Israel in the mid-1980's. The German
and Austrian hyperinflations ended in 1924. The memory of the hyperinflation in
Germany has kept German central bankers from inflating their currencies on this
scale.
There have been periods of what can
be called repressed inflation, where nations inflate their currencies, but
control prices and wages by law in order to conceal the effects of this policy.
Nevertheless, we have never seen a situation in the West in which capitalism
has been called into question as a result of hyperinflation. Lenin was wrong.
Keynes was wrong.
Hyperinflation is a short-term
phenomenon. By its very nature, it disrupts market processes. But that means it
disrupts legal and above-board market processes. It makes black marketeering
profitable. It is true that, in reaction against the profiteering of the great
inflations immediately after World War I, there was considerable hostility
against capitalists, and especially Jewish capitalists, who had profited as a
result. But because Jews were mostly urban, and hyperinflation hurt cities far
more than the countryside, where barter was possible, urban Jews on the whole
were dispossessed of their property. It is true that many farmers did really
well as a result of hyperinflation, but one of the titles of the world's
shortest books is this: Famous Jewish Farmers.
Hyperinflations redistribute wealth.
They do not last long, because it is not possible to conduct economic affairs
in a currency that has collapsed. You can pay off old debt with it, but you
cannot buy anything of value with it. It destroys the division of labor in the
legal markets, and it transfers the division of labor into the black markets.
Because hyperinflation is not
understood by most people, there are a few winners in the period of
hyperinflation, and there are lots of losers. But we have not seen a move
directly from hyperinflation to socialism or communism.
It is often said that Hitler was a
result of the hyperinflation in Germany. This is not an accurate assessment.
The Weimar Republic operated for nine years after the hyperinflation before
Hitler came to power in 1933. It was not socialist. It had what we would call
welfare state tendencies, but it was not marked by the state's ownership of the
means of production. It was more like the New Deal than the USSR. So, for that
matter, was Hitler's Germany.
Hyperinflation is a bugaboo within
the Right. It should not be.
The problem of central banking is
not that it leads to hyperinflation. The problem with central banking is the
endless cycle of booms and busts, euphoria and disappointment. These periods
tend to increase the central governments' control over the economy, especially
during periods of big bank bailouts. There is a move towards Keynesianism, but
there is not a move toward socialism or communism. The victims of
hyperinflation do not call for the overthrow of capitalism. They have not even
gone so far as to call for the cessation of central banking.
Central banking came into its own
during World War I, and it has never surrendered territory since then. Germany
and Austria did not abolish their central banks after 1923. If the
hyperinflation of the 1921-23 period did not persuade the voters that the
pre-gold coin standard was superior to central banking, then central bankers
are safe in seeing no threat to their control over national economies around
the world.
Hyperinflation is not in our future.
The massive debts of the modern welfare state are not such that they can be
paid off by two or three years of hyperinflation. The political promises made
by central governments to the masses of the population are promises that are
thought to extend down through the ages: irrevocable. The fiscal burdens of
Social Security and Medicare cannot be relieved by hyperinflation.
Hyperinflation produces the destruction of the currency, and a currency
revision follows. The political promises of the modern welfare state will still
be on the books in the aftermath of any hyperinflation. This is why there is no
payoff to the government or the central bank from hyperinflation.
Hyperinflation calls attention to
the incompetence of central bankers. This is why central bankers do not indulge
in it, except when governments force them to do so.
The 450% inflation in the state of
Israel in 1984 did not lead to a call to shut down the central bank. The bank stopped inflating. Capitalism remained intact. It will take more than
hyperinflation to destroy either capitalism or central banking.
Comments
If Gary North is correct, we can
demand the end of Federal Reserve money printing like Israel did. If Gary North is wrong, then Obama, like
Lenin is using government over-spending and QE to crash the dollar and then
dissolve the federal government in favor of a UN led global communist tyranny
dedicated to the global warming hoax..
If the Fed claws back the remaining trillions
of dollars from the banks before they are circulated, we will see the stock
market bubble burst, the stock market will crash and then adjust back up to
about 70% of its current value. We could
also see a rise in mortgage and other interest rates. This would raise the interest cost on our $17
trillion debt and might result in a smaller federal government.
Our goal is to make the federal
government cede their unconstitutional activities to the States by finally recognizing
the wisdom of the 10th Amendment.
We want to limit federal spending to match federal revenue. We want to get the federal government to
clean up and stop attempting to wreck our free market economy. We want sound money with no inflation.
Every-day Americans will feel the
brunt of any inflation that occurs. Hyperinflation
attacks food prices and is dangerous and disruptive. Higher interest rates would result in the
continuation of our long economic depression and the federal government may not
voluntarily shrink. American’s objection
to any level of Immigration will become their path to more jobs for
Americans. Voter irritation at federal
government imposed abuse will become more pronounced.
In the 1970s, double-digit inflation
was the result of the Federal Reserve removing interest rate caps and allowing
interest rates to float up to “market”. The
result was an immediate recession where manufacturers laid off workers and invested
to increase inventory turns and home mortgage interest shot to 13%. As interest
rates eased in the 1980s, we all refinanced at 10%, then 7% and lower in the
1990s. The federal government had not yet corrupted its definition of the CPI
and its debt was under $5 trillion.
The ill effects of money printing
are longer-term. A good family income in
the 1960s was $10,000 a year, now it’s $100,000 a year. Inflation devalues the dollar permanently
over 50 years with devastating affect.
Regular Americans will not fare as
well as they did in the 1980s. Our bad
trade agreements have allowed the offshoring of our jobs. The electronics manufacturing of the 1980s is
gone. Oil exploration is the only bright
spot in our economy and the federal government continually attacks it.
Current economic realities will keep
wages for most Americans low and social security benefits low, while the cost
of living skyrockets up. The federal government, elected representatives and
the defenders of the Federal Reserve will attempt to escape the blame. We will
demand that they finally close the border and repeal the unconstitutional laws,
regulations and activities that are job killers. Printing money is theft and
we’re not happy with the elected officials who served since 1989 and brought us
to this point in time.
Norb Leahy, Dunwoody GA Tea Party
Leader
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