Inflation: The Ultimate Deal Breaker
Honest money is the foundation for honest exchange in the marketplace.
Inflation: The Ultimate Deal Breaker
“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 does it in a manner which not one man in a million is able to diagnose.”
- John Maynard Keynes, The Economic Consequences of Peace (1919)
Humans are social creatures. It is how we have organized modern society. The fundamental building blocks to a functioning progressive society is the general acceptance of some degree of honesty, goodwill, and contract. Respect for property rights is central to the social exchange on which all arrangements are built.
Trade is the ultimate form of voluntary cooperation. Individuals engaging with one another in transactions proves there is a shared appreciation for the virtues articulated above. That’s not to say it’s all sunshine and rainbows. Disputes are somewhat common, dishonest dealmaking perhaps less so. We are humans, after all. The goal is for mutualism. We all gain when we make good deals.
Free association has a natural shunning element discouraging disruptive participants. On the playground, no one wants to play ball with the cheaters or the obnoxious. The market naturally identifies and weeds out such behavior as much as possible. Honest and positive relationships are rewarded tend to flourish. This is the way.
“Inflation is always and everywhere a monetary phenomenon.”
- Milton Friedman (1963)
While some deals are inevitably broken, there perhaps is no worse force in undermining every transaction than inflation. Milton Friedman’s quip above highlighted it succinctly: inflation is the expansion of the money supply. Fiat systems, or irredeemable paper money, have a nagging tendency to be inflationary. The temptation is too great. The politically connected wield the power to emit new bills and dispense with the same general acceptance as what is currently in circulation. There is a time lag before the rest of the playground wises up to the deception. Everyone on the field has seen their purchasing powers diluted through higher prices. The cheats took advantage of the honest participants.
On a larger scale, inflation alters the mindsets within the economy. Debt is encouraged; savings is a fool’s errand. A dollar today is worth more than tomorrow. This corrupting backwardation inverts responsible behavior. Borrow more, save less, YOLO becomes the social mantra.
Inflation also embeds a subtle default in every transaction. Lenders are paid back in a lower quality media than what they lent. Accounts receivables morph into accounts deceivable. Inflation is the ultimate deal breaker.
The good news? There is hope. The monetary authorities have long been cloaked under a veil of obscurity. That has changed. Millions regularly discuss the Federal Reserve, the central bank of the US and chief inflator. The term “inflation” has become a common reference in everyday life. Consumers are noticing what they’re spending isn’t what it used to get them. We need honest money if we are to have an honest society.