But let us examine the American setting as it is, a reversal in form, one might say. It seems that the persons we placed in government as our agents of peace discovered a weakness in our unique structure. Having acquisitive instincts for power over others—as indeed so many of us do—they found that the police power they had been given to keep the peace could be used to invade the peaceful, productive, creative areas the citizens had reserved for themselves—one of which was the business sector. And they also discovered that if they incurred any deficits by their interventions, the same police force could be used to collect the wherewithal to pay the bills. The very same force that can be used to protect against predation can also be used predatorily!
It is this misuse of police force, so little understood, which explains why we Americans who inveigh vociferously against socialism are unwittingly adopting socialism ourselves. For it is clear that the extent to which government has departed from the original design of inhibiting the unpeaceful and destructive actions; the extent to which government has invaded the peaceful, productive, creative areas; the extent to which our government has assumed the responsibility for the security, welfare, and prosperity of the citizenry is a measure of the extent to which socialism—communism, if you choose—has developed in this land of ours.
Can we measure this political devolution? Yes, with near precision. Reflect on one of the manifestations of the original structure: each individual having freedom of choice as to how he disposes of his own income. Measure the loss in this freedom of choice and you measure the gain of socialism. Merely bear in mind that freedom of choice exists except as restraint is interposed. Thus, the loss in freedom of choice shows the gain in authoritarian socialism.
The Growth of Government
Let us, then, proceed with the measurement. About 125 years ago the average citizen had somewhere between 95 and 98 per cent freedom of choice with each income dollar; which is to say, the tax take of government—federal, state, and local—was between 2 and 5 per cent of the people’s earned income. But, as the emphasis shifted from the original design, as government invaded the peaceful, productive, and creative areas, and as government assumed more and more the responsibility for the security, welfare, and prosperity of the people, the percentage of the take of total earned income increased. The 2 to 5 per cent take of a relatively small income has steadily grown to a take of approximately 36 per cent of a very large earned income—and grows apace!
Many complacent persons, undaunted by this ominous trend, remark: “Why fret about this; we still have remaining to us, on the average, 64 per cent freedom of choice with respect to each income dollar.
Parenthetically, may I suggest that we use with care the term “on the average.” Assume a 40-hour week, 8 hours a day, Monday through Friday. The average person, today, must work all of Monday and until mid-afternoon on Tuesday for government before he can begin to work for himself. But, if the individual has been extraordinarily successful, he has to work all of Monday, Tuesday, Wednesday, Thursday, and until noon on Friday for the government before he can start working for himself. He has only Friday afternoon to labor for his freedom-of-choice dollars. This, it seems, is a part of the “new” incentive system!
While we still enjoy 64 per cent freedom of choice over our earned income, this should afford little consolation. For we’ve long passed in this country the historical 20 to 25 per cent tax level beyond which governments seldom have gone without resorting to inflation. We are well into the inflationary stage, which means that constitutional or institutional limits on the taxing power have been abandoned; the government has found a way to take all our earned income if and when it chooses to do so.
Are we inflating? Indeed, yes! Let me explain that by “inflation” I do not mean rising prices, a consequence of inflation; rather, I mean government’s expansion of the volume of money. To the economist or mathematician, inflation is the same as counterfeiting; to the lawyer, inflation is distinguished from counterfeiting by being legal. But, definitions aside, governments always have popular support for their inflationary policies; politicians act in response to popular support; they cannot remain in office without it. Why the popular support? It is because a majority of voters are naive enough to believe that they can eat their cake and still have their cake left to them, which is to say, they can continue to receive handouts and “benefits” from government without having to pay for them. Because they see no direct tax levy and because they do not understand that inflation is a cruel, unjust form of taxation, they applaud the something which they feel is coming to them for nothing.
It is interesting to observe the tricks of inflation—political sleight-of-hand, coin clipping, for instance. The sovereign of old—by police force, that is, unpeacefully—“called in” the coin of the realm, clipped the edges, retained the clippings, and returned the balance to the owners. This skulduggery continued until the coins became too small to return.
The French Revolution put that government in dire financial straits, so it issued, in ever-larger amounts, an irredeemable paper money, known as assignats, secured not by gold but by confiscated church properties. Every American should read and know by heart the catastrophic aftermath.
In Argentina—following Perón and until recently—the expense of the national government was, shall we say, 100 billion pesos annually. But only half that amount could be collected by direct tax levies. How handled? Simple! They merely printed 50 billion pesos annually. One need not be much of an economist to realize that when the money volume is expanded, everything else being equal, the value of the monetary unit declines; prices rise. Imagine yourself “secure” at the time of Perón’s ascendancy to power: bank accounts, insurance, social security, a pension for your old age. These, along with all forms of fixed income, were politically rendered more or less worthless.
Our inflationary scheme in the U.S.A. is brilliant legerdemain: it is so complex that hardly anyone can understand itl We monetize debt; that is, the more the government spends, the more is the money supply expanded. Since the start of deficit financing and monetized debt, our quantity of dollars has enormously increased. Anyone with an eye to trends can observe that the dollar has declined in value and that prices are on the upswing.
The Russians, in my judgment, have the most honest system of dishonesty: the Kremlin—with guns, if necessary—“calls upon” the people to purchase government bonds. After the people have bought the bonds, the government cancels the bonds. Certainly, one does not have to be an economist to observe the chicanery in this method of inflation.
Frankly, I wish we were employing the Russian system of dishonesty rather than our present complex system. Were we inflating in this crude Russian manner, many Americans would be aware of what is being done to them. People who can’t see through shell games are likely to be taken in.
This is what we must realize: Inflation is the fiscal concomitant of socialism or the welfare state or state interventionism—call these unpeaceful, political structures what you will. Politically, it isn’t possible to finance government expenditures by direct tax levies beyond the point at which direct tax levies are politically expedient—20-25 per cent, as a rule. The overextended state is always beyond this point. Thus, anyone who does not like inflation can do nothing about it except as he assists in divesting our economy of socialism.
A good economy, in one respect, is analogous to a sponge; it can sop up a lot of mess. But once the sponge is saturated, the sponge itself is a mess. The only way to make it useful again is to wring the mess out of it.
Inflation in Modern France
Inflation may be better understood if we analyze it in some country other than our own; it is difficult to see our own faults, easy to note the mistakes of others. France serves our purpose, for that country, economically, has many likenesses to the U.S.A.
In 1914—only 50 years ago—modern France began what is now underway here; that is, her government invaded the peaceful, productive, creative areas and more and more assumed the responsibility for the security, welfare, and prosperity of the French people: socialism.
If my previous contentions be correct, the franc should have lost some of its purchasing value during these 50 years. To repeat, I have contended that socialism can be financed only by inflation which is an expansion of money volume—with a consequent price rise as money value declines. If my reasoning is valid, the franc should have declined in purchasing value. Has it? Yes, more than 99½ per cent!
In Paris, during World War I, I bought a good dinner for 5 francs, the equivalent of a 1918 dollar. On my next visit to Paris—1947—I took a friend to luncheon, admittedly a better restaurant than I visited as a soldier boy. How much for the two luncheons? 3,400 francs! Two years later I took my wife to the same restaurant and had the same luncheons, because it is instructive to check prices. How much? 4,100 francs! On a recent visit, same restaurant, same luncheons—6,000 francs!
Visualize a French lad in his early teens, forethoughtful, looking to 1964 when he would reach retirement. He bought a paid-up annuity, one that would return him 1,000 francs per month beginning in 1964. In 1914, the year of purchase, he could have lived quite handsomely on this amount. Yet, in 1964, the thousand francs will buy no more than a skimpy, low-grade meal, pretty poor fare for a whole month! This fictional catastrophe, in no way exaggerated, was brought about by an inevitable inflation in the name of social security.
The validity of this line of reasoning is confirmed historically: Only 35 years ago the take of earned income by government in Russia was 29 per cent; in Germany, 22 per cent; in England, 21 per cent. Keep in mind that we are now at 36 per cent and that our government has the policy of increasing expenditures as it reduces taxes, assuring more inflation which, of course, increases the take.
The “Galloping” Stage
Inflation, in popular terms, is of two types: “creeping” and “galloping.” Ours is often described as “creeping,” a term that appears rather weak to describe a dollar that has lost between 52 and 63 per cent of its purchasing value since 1939—according to which index one uses.
“Galloping” inflation is the type that Germany experienced following World War I and France during her issuance of the assignats. China’s money went “galloping” not too long ago, and the same can be said for the Latin American currencies right now.
I own one piece of Bolivia’s currency—10,000 Bolivianos. In 1935 it had the purchasing power of 4,600 of our 1964 dollars. What now? Eighty cents! There is galloping inflation for you and brought about—they had no wars—by socialism. In every instance “galloping” inflation has been preceded by “creeping” inflation. Not too strangely, inflation creeps before it gallops; and anyone having a dread of inflation should be on the alert whenever it begins to creep.
Any rational person should dread inflation, more so in the U.S.A. than elsewhere, and for self-evident reasons: Americans have a more advanced division-of-labor society than has heretofore existed; we are more specialized and further removed from self-subsistence than peoples of other times and places. I, for instance, do not know how to build my home, raise my food, make my clothes; with respect to most of what I consume, I know next to nothing. Like all other Americans—even farmers, for they are mechanized—I have become dependent on the free, uninhibited exchange of our countless specializations. Try to visualize existing on that which you alone produce!
A necessity is anything on which we have become dependent. Free, peaceful, unfettered exchange is as necessary to present-day Americans as is air or water.
There is, however, a key fact to keep in mind: In a highly specialized economy it is not possible to effect these necessary exchanges by barter. The woman who inspects transistors makes no attempt to barter the service she renders for a pair of shoes; nor do you observe a car owner trying to barter a goose for a gallon of gas.
No, an advanced division-of-labor economy cannot be made to function by direct swaps of this for that. Such an economy has only one means to effect the necessary exchanges of its numerous specializations: an economic circulatory system, that is, a medium of exchange—money.