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“Outside the Federal Reserve, many business leaders expressed concern about prolonged easy money.” – (Allan Meltzer, A History of the Federal Reserve, Volume 2, Book 1)
In Slouching Towards Utopia, J. Bradford DeLong reminds us of our love for narrative by introducing one of his own, the economic history of the twentieth century (1870–2010): “Stories with an exciting plot and an appropriate end of comeuppances and rewards fascinate us. They are how we think. They are how we remember.”
Our love for narrative is superseded only by our forgetfulness. How easily we forget.
DeLong wrote his book “to engrave these lessons on our collective memories”, and two of the five processes/sets of forces that constitute his theme are a good place to start. (1) History became economic, “the long twentieth century was the first century ever in which history was predominantly a matter of economics”; (2) Governments mismanaged, creating insecurity and dissatisfaction.
These two forces have once again converged into what I call: easy money snipers. Kevin Durant, also known as an easy money sniper because of how easily he scores, now has formidable rivals for his handle from monetary and fiscal policy elites who pummel our purchasing power with their printing presses. Easy money snipers create easy money, and easy money inevitably leads to hard times.
It is no coincidence that two of the books that speak to flaws in our muddle-headed monetary matrix contain the phrase “easy money” in their titles. Christopher Leonard’s, The Lords of Easy Money: How the Federal Reserve Broke the American Economy; and, more recently, Easy Money: American Puritans and the Invention of Modern Currency by Dror Goldberg.
Both titles, especially when paired, are formidable foils to the false narrative bandied about by officialdom, and, depending on how far down the rabbit trail we want to go, explain how other basic freedoms are (and will be) eroded. Most importantly, both titles demonstrate that accountability lies squarely and solely at the feet of monetary and fiscal policy elites.
Irving Fisher dedicated the opening chapter of The Purchasing Power of Money to defining his terms and Goldberg follows suit, defining modern currency as “a government-issued object that has no intrinsic value (token coin, bill, or the upcoming central bank digital currency), that is not a legal claim to any intrinsically valuable commodity such as gold, and whose only legal support is being legal tender for debts and taxes in a state or a federation.”
It cannot be stressed enough, the abstract and academic often have the most concrete consequences. As Fisher notes, “The study of the principles and facts concerning the purchasing power of money is of far more than academic interest. Such questions affect the welfare of every inhabitant of the civilized world. At each turn of the tide of prices, millions of persons are benefited and other millions are injured.”
Goldberg makes a crucial distinction in his definition. Modern currency refers, not to paper currency, but legal tender currency for debts and taxes. As Eswar Prasad (The Future of Money) observed, “Insofar as cryptocurrencies lack the backing of a government or other institution, they might appear to stand little chance of competing with fiat currencies in the long run.”
Money is power, but the reverse is also true – power is money. Political power determines and defines what counts as money. “By completely releasing the quantity of money from the supply of metal,” writes Goldberg, “governments that imitated Massachusetts obtained unprecedented political and economic power. Pastor Cotton Mather, the mad genius of Boston, predicted just that in 1697.”
What holds in the twenty-first century goes back over a thousand years when China became the first country to issue paper currency backed at first by precious metal, but later forced on sellers under the penalty of death. Around the end of the Middle Ages, the Chinese had enough of paper and its inflation and returned to silver.
China’s history shows that we love to repeat it since the same problem lies at the core of our muddle-headed monetary matrix, namely, lack of discipline and accountability from monetary and fiscal policy elites. Forcing citizens to accept unbacked paper currency did not absolve Chinese authorities of the need for discipline in controlling its issuance.
The currency eventually went out of circulation when Kublai Khan’s successors succumbed to the temptation to print large amounts of the currency to finance war expenditures. Hyperinflation followed, and the rest as they say is history. History over the long twentieth century that, unfortunately for average citizens, would repeat itself. The overlords succumbed again during the Vietnam War and it is to that we turn to next since we tend to forget.