Tag: Deflation

Theodore Dalrymple on the culture of inflation

In the Summer 2009 issue of City Journal Theodore Dalrymple  discusses the cultural effects of inflation:

asset inflation—ultimately, the debasement of the currency—as the principal source of wealth corrodes the character of people. It not only undermines the traditional bourgeois virtues but makes them ridiculous and even reverses them. Prudence becomes imprudence, thrift becomes improvidence, sobriety becomes mean-spiritedness, modesty becomes lack of ambition, self-control becomes betrayal of the inner self, patience becomes lack of foresight, steadiness becomes inflexibility: all that was wisdom becomes foolishness.

As a general rule, economists do not feel comfortable with cultural arguments. Often, this is not necessary because cultural arguments can be rephrased in technical language that economists do feel comfortable with. In the case of government-induced  currency debasement, the effects of these policies can be evaluated from an economic point of view by studying how inflation alters the incentives and behavior of economic agents. If Dalrymple is correct, the behavioral micro-effects (or even “pico-effects”) of unpredictable changes in the value of money deserve a lot more attention from economists than has been given so far.

Ironically, the cultural effects of inflation have received little attention from empirically-minded  progressive commentators but are increasingly discussed by conservative-leaning Austrian economists. For example, Jörg Guido Hülsmann writes:

The spiritual dimension of these inflation-induced habits seems to be obvious. Money and financial questions come to play an exaggerated role in the life of man. Inflation makes society materialistic. More and more people strive for money income at the expense of personal happiness. Inflation-induced geographical mobility artificially weakens family bonds and patriotic loyalty. Many of those who tend to be greedy, envious, and niggardly anyway fall prey to sin. Even those who are not so inclined by their natures will be exposed to temptations they would not otherwise have felt. And because the vagaries of the financial markets also provide a ready excuse for an excessively parsimonious use of one’s money, donations for charitable institutions will decline.

Similar observations can be made about Keynesian policies to stimulate “the economy.” With the exception of a handful of libertarian socialists, progressives do not appear to be bothered at all by economic doctrines that treat consumption for consumption’s sake as a remedy for economic ills.

Crass Keynesianism

A recurrent comment about public policies inspired by Keynesian economics is that they are crass or vulgar. Instead of seeing a complicated  and unpredictable interplay of individuals pursuing their own ends, society is perceived as a giant machine (“the economy”) that needs to be manipulated to produce specific policy outcomes (“economic growth”).  Public policies inspired by Keynesian economics do not hesitate to interfere with what many people would consider completely private matters such as how much to save or spend.

Whereas traditional Marxism still aspired to replace the government of people with the administration of things, no such hopes exist in Keynesian economics (or its more recent incarnation, New Keynesian Economics) which mandates continuous government intervention. It is not hard to notice the similarity between such a perspective and  modern liberalism, which requires a similar activist role for government. Both philosophies feel uncomfortable with traditions, conventions, or deontological constraints that limit complete control of the building blocks of society.

It remains a mystery why progressives seem to prefer Keynesian economics to free market economics. Whereas advocates of free markets usually leave decisions about labor, spending, and consumption to the individual, Keynesian public policy makers routinely encourage consumption for consumption’s sake. One wonders how progressives reconcile their critique of consumerism and predatory advertising  with such grandiose plans to stimulate the economy. To be fair, some advocates of liberty have embraced the same paradigm, producing a parallel form of “crass libertarianism”. In such philosophies a person and his property should be respected  not because not doing so constitutes a tort, but because freedom produces “growth.”

A recent publication that focuses on the cultural dimensions of economic paradigms is  Jörg Guido Hülsmann’s Deflation and Liberty, in which prevailing monetary dogmas are reviewed as an expression of  interests and power. A reading of this work in light of James M. Buchanan’s collection Ethics and Economic Progress, which presents an economic case for hard work and saving, will be attempted on this blog in the future.