Sometimes the reforming radicals are those
who also seek to conserve.

The economic facts behind the Autumn Statement, in as far as they are known or forecast, are available in the Economic and Fiscal Outlook from the Office for Budget Responsibility. Table 4.7 provides forecast current receipts. Table 4.18 provides total managed expenditure. So, here’s a chart of current receipts (i.e. tax) and total managed expenditure (i.e. spending) for the next few years:

The reality is that the Government intend to increase spending every year of the forecast period and to meet that spending with increased revenues. There will only be cuts as a proportion of GDP, and only if it grows. There will only be real cuts if there is inflation.

It’s tragic that we have created for ourselves a state which cannot provide more with more money and that, from the perspective of real public services, there are cuts at all.

There’s much to be said about inflation, inflating the debt away and, indeed, inflating away public expenditure. There’s something fundamentally dishonest about it. That’s why I co-founded The Cobden Centre to press for honest money: our inflationary financial system is undermining society, just as Keynes and Mises said it would.

Keynes wrote,

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

And Mises explained,

Inflation is the last word in destructionism. The Bolshevists, with their inimitable gift for rationalizing their resentments and interpreting defeats as victories, have represented their financial policy as an effort to abolish Capitalism by destroying the institution of money. But although inflation does indeed destroy Capitalism, it does not do away with private property. It effects great changes of fortune and income, it destroys the whole finely organized mechanism of production based on division of labour, it can cause a relapse into an economy without trade if the use of metal money or at least of barter trade is not maintained. But it cannot create anything, not even a socialist order of society.

We have been plunged into the present misery by a long credit boom caused by low interest rates. Politicians now seem to be helpless in the face of a crisis caused by the inflationary financial institutions they have allowed for the decades following the collapse of Bretton Woods. The only prescription for recovery appears to be more inflation or, as they call it today, “quantitative easing” and “credit easing”.

Yet more money and bank credit may lead to a boom initially, or perhaps merely to a moderation in our difficulties compared to our neighbours, but it is bound to erode the capital stock, to hide losses and to cause a yet worse problem later. The illusion of prosperity created by “monetary activism” cannot last.

If we are to have lasting prosperity and a just socio-economic system, we need instead, as the Chancellor used to say, an economy based on save and invest. That requires, as prerequisites, honest money which holds its value and a state which lives within its means.

In his short article Inflation and You, Ludwig von Mises explains inflation itself, the social and economic effects of inflation, who inflation’s victims are, the futility of attempts to hedge against inflation, the moral and political effects of inflation and, finally, inflation and government borrowing. I thoroughly recommend the whole article, but I reproduce the section on government borrowing, which seems particularly pertinent at the moment:

Inflation and Government Borrowing

The writer, having witnessed the course of inflations in one European nation after another, believes that it is not too late to stop further inflation in the United States by bold and painful measures. Inflation is not an act of God. It is a result of the methods used to provide a part of the means for the conduct of the war. One set of methods can still be replaced by another, less harmful set. It is still possible to keep down the amount of money and money substitutes by financing the total amount necessary through taxation and loans.

People sometimes call inflation a special way of “taxing” a country’s citizens. This is a dangerous opinion. And it is wholly untrue. Inflation is not a method of taxation, but an alternative for taxation. When a government imposes taxes, it has full control. It can tax and distribute the burden any way it considers fair and desirable, allotting a larger share of the tax burden to those who are better able to carry it, reducing the burden on the less fortunate. But in the case of inflation, it sets in motion a mechanism that is beyond its control. It is not the government, but the operation of the price system, that decides how much this or that group will suffer.

And there is another important difference. All taxes collected flow into the vaults of the public treasury. But with inflation, the public treasury’s gain is less than what it costs the individual citizen, since a considerable part of that cost is drained off by the profiteers, the minority that benefits from the inflation.

It is no less fallacious to consider inflation as a method of raising loans for public use. Technically, inflation does increase the total of the government’s indebtedness to the banks. But the banks’ intervention is only instrumental. If the government borrows from the banks, the banks do not grant loans out of their own funds, or out of money deposited with them by the public; the banks are not real lenders; they grant the loans out of their “excess reserves.” They merely expand credit for the benefit of the government. In other words, they increase the quantity of money substitutes.

When you as an individual buy a government bond, you make a loan to the government; you put part of your cash holdings into the hands of the treasury. There is then no increase in the total quantity of currency or credits available and hence no inflation.

However, it is different when government borrows from the banks’ “excess reserves.” Their so-called “excess reserves” are not a tangible thing. The term is merely a phrase indicating the limits within which the law is prepared to tolerate credit expansion, that is to say further inflation. The effects of loans from available “excess reserves” are just as inflationary as the effects of issuing more paper money. It is a mistake, therefore, to confuse this government “borrowing” from the “excess reserves” of the banks with genuine loans.

Popular education is absolutely essential. It is clear that the efforts of the U.S. government to collect the means necessary for the conduct of the war by taxation and by sale of government bonds represent sound measures for heading off inflation. Everybody should be made to understand that the burden of high taxes and of making personal loans to the government are minor evils compared to the disastrous and inexorable consequences of inflation. Not only for the sake of the national welfare, but for the sake of your own interests–whether you are rich or poor, employer or wage earner–you should do your best to arrest the further progress of inflation.

See also Hülsmann, The Ethics of Money Production for a detailed explanation of how the production of money has become an instrument of exploitation and the consequences.

From the Mises store:

How Government in the Ancient World Tried to Deal with Modern Problems

What a fantastic way to learn ancient history: via the parallels with modern times.

H.J. Haskell was a journalist with a huge background in ancient history, and here he does what everyone has wanted done. He details the amazing catalog of government interventions in old Rome that eventually brought the empire down. He shows the spending, the inflating, the attempt to fix prices and raise wage, the infrastructure boondoggles, the gross displays of public entertainment, the welfare scams, and much more.

At every step he draws a parallel with modern times. Modern governments also destroy the money to fund the state, extend vast military empires that are unmanageable, try to control the market order, and attempt to rig political decision making in order to buy off the population.

The comparisons between then and now generate ominous lessons for our times.

This book was a smash hit when it first came out in 1939, and yet it went out of print, and hasn’t been in print in half a century.

It seems fascinating and the PDF of the book is available here.

Update: From the conclusion:

The fundamental modern social problem is the problem that Rome failed to solve. It is the problem of building a unified yet free society, with decent minimum standards of living. A society so intelligently and justly organized that there is no menacing submerged class. A society that provides reasonable incentives for the free rise of a general staff of competent managers whose ranks are always open to fresh recruits. A society that develops a social pressure under which leaders accept an enlightened and far-sighted view of their responsibilities. This is the society which the long experience of Rome sets as a goal before the modern world.

As ever, it seems, “Those who cannot remember the past are condemned to repeat it.”

A great lesson on inflation from Frank Shostak appears on mises.org, including this quote from Ludwig von Mises:

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, that is, the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. …

As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.

The point is that our monetary system is designed to produce inflation by encouraging bank lending and, when money creation through that mechanism falters, “Quantitative Easing” takes over. A better term would for all this would be be “robbery”.

Read the rest of the article here:  Inflation Is Here, and It Is Going to Get Worse – Frank Shostak – Mises Daily.

You may also enjoy The Crime Known as Quantitative Easing and the Violation of Mr Smith at The Cobden Centre.

Fortunately, these ideas are taking off. See for example the Adam Smith Institute’s What is inflation?

Later, I’ll set out the case against inflation, which is caused by the instutional design of the banking system. For the moment, here’s a relevant article from the Cobden Centre:

Mr Smith works hard, plans carefully, and saves what he can, putting his money into a building society. He pays his credit card bills off each month, and tries to overpay his mortgage when he can.

Mr Smith got a 3% pay rise last year – inflation was only 2% – so he felt good about that. But… he doesn’t feel any wealthier.

Year after year, the government had said that the economy was growing strongly, but still, things seemed harder for his family and him. Train ticket prices up again. Heating bills rocketed when the price of oil went up, but never seemed to come down. He swears a loaf of bread and a pint of milk were much cheaper in years gone by.

When he changes his cash for Euros, he realises that his holiday in France is now unbearably expensive. His tax rates didn’t go up, but still, after all his bills were paid, he seemed to have less and less spare cash than he remembers a few years ago.

There are Mr Smiths everywhere. Careful folk, who plan, save for a rainy day and have a sense of personal responsibility.

Smith is the target.

Read the rest of the article.