Our government is coming to resemble the mob rule of true democracy more every day; and one unfortunate feature of democracy is that democratic governments tend to focus only on short-term problems. Our legislators and our president are focused only on the next few years running up to their re-election campaigns. The perverted filter which democracy imposes on reality explains the government’s long-running love affair with the inflationary economics of John Maynard Keynes, famous for his statement that “in the long run, we are all dead.”
As rational human beings who deal with the real-world results of government monetary policy, it is useful for us to look at the implications of these policies in the long run. The effects of inflationary monetary policy are observable throughout history, from the fall of Rome to the current situation in Zimbabwe. The pattern goes something like this:
- Government seizes control of the monetary supply.
- Currency debasement occurs due to increases in the money supply.
- Hyperinflation of prices begins to manifest.
- People begin to severely discount government money or refuse to accept it altogether.
- Legal tender laws are put into effect, backed (as with all government regulations) by the threat of violence.
- Price controls are enforced to combat inflation.
- Shortages and chaos arise due to repressed inflation.
- People dump money entirely and invest only in real goods.
Our government has long controlled our monetary supply, and the currency has been severely debased due to the inflationary policies of the Federal Reserve. We already have legal tender laws in effect that prohibit us from refusing government paper, however useless we might think it. The specter of hyperinflation has haunted our country ever since its founding, when over-issuance of colonial paper by the Continental Congress nearly starved George Washington’s army at Valley Forge out of existence.
Government officials may choose to ignore long-run problems, preferring to buy their next term in office by offering “free” healthcare, or cash for your clunker. But we have to live with the results of their foolishness. We cannot afford to let them ignore reality.Published in