#BTColumn – The inflationists (Part 2)

“The inflationists’ dream is some sort of world paper money, manipulated by a world government and Central Bank, inflating everywhere at a common rate.”

– Murray N. Rothbard

 Regarding the hyperinflations in the aftermath of World War I, the authors of Rebellion, Rascals, and Revenue note that in Vienna, “it was considered prudent for drinkers to order two beers at a time, because the price was expected to have gone up before they got to the second.”

(Follow me for more consumer tips.) Remaining in Austria. In the excellent Journey to the Edge of Reason, Stephen Budiansky cites German physicist Max von Laue who visited Vienna in 1922 and reported, “One cannot talk about prices, before one’s sentence has ended, they have increased again.”

My working definition for inflation comes from a commenter on the aforementioned WSJ editorial, “a stealth tax on the poor and middle class because their purchasing power is eroded. Big government loves it because it reduces the cost of their borrowing.”

(Borrowing that said poor and middle class, and their children, will bear the brunt of.) Now is as good a time as any to read and reflect on Murray N. Rothbard’s classic: What Has Government Done to Our Money? A title that doubles as the question most asked by Bajans as they go about their business.  (But that is another story.) “What governments want, after all,” says Rothbard, “is not simply inflation, but inflation completely controlled and directed by themselves. There must be no danger of the banks running the show. And so, a far subtler, smoother, more permanent method was devised, and sold to the public as a hallmark of civilisation itself – Central Banking.”

As the record bond purchases continue, it becomes clear why Rothbard is relevant: “Undoubtedly, the favourite asset for Central Bank purchase has been  government securities.

In that way, the government assures a market for its own securities. Government can easily inflate the money supply by issuing new bonds, and then order its Central Bank to purchase them.” Federal Reserve returning to its apolitical roots? Perish the thought (but stock up on toilet paper).

Rothbard continues, “Often the Central Bank undertakes to support the market price of government securities at a certain level, thereby causing a flow of securities into the Bank, and a consequent perpetual inflation.”

This is a serious topic, but I couldn’t help but smile (nay, cackle) at the following comment, “By transitory he [Jerome Powell] means that moderate inflation will last only a short period of time —– to be replaced by severe and raging inflation.”

If you don’t laugh you will cry. And cry we (eventually) will. Stephen Budiansky’s discussion on the Austrian solution for dealing with uncomfortable social realities seems fitting in the context of our economic realities (especially when one listens to officials from the Fed, and the people who take them seriously).

According to Viennese playwright Johann Nestroy, the Austrians feigned comfortable ignorance. One historian put it this way, “Life was pleasant and amusing because the Viennese had a superb gift for looking away.”

One of the “most thoroughly Viennese of all operas,” writes Budiansky, “ends Act I with a song that declares, ‘Happy is he who can forget what cannot be changed.’”

And perhaps some people will choose to do just that; look away and forget, in the same vein as the Austrians’  “feigned comfortable ignorance.”

But, as Rothbard reminds us, “inflation cannot go on forever. […] eventually people wake up to this form of taxation; they wake up to the continual shrinkage in the purchasing power of their dollar.” The only question is, when and how rude that awakening will be.