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Money and Inflation

(M B, October 2005.)

“Ye shall do no unrighteousness in judgment, in meteyard, in weight, or in measure. Just balances, just weights, a just ephah, and a just hin, shall ye have: I am the LORD your God...A false balance is abomination to the LORD: but a just weight is his delight.” (Lev. 19:36, Proverbs 11:1.)

“No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts…” (U.S. Constitution)


Governments can only raise money two ways. One by taxing and the other by inflating. (They can postpone it by borrowing)

Inflation is not rising prices, but rising prices are the effect of inflation. Inflation is an increase in the amount of currency, thus making all currency less valuable. Businesses, in order to protect themselves against inflation, increase the prices of their goods and services.

Inflation is a hidden tax, and worse than directly taxing because as paper money is printed to cover government profligacy, the value of all dollars decrease. American's standard of living goes down, and they think it is natural market forces, and thus, no one is held accountable.

The crisis with our currency is almost as old as time. The Roman government clipped their coins, and, as an implied edict, the coins were still as valuable as they were prior to clipping, and the government used the clipped portion for whatever purpose it saw fit. So the amount clipped off the coins became fiat currency, or money-out-of-nothing and by that amount the Roman currency was inflated.

One of the problems is the people get used to the name of the currency being the thing of value, instead of what that name represents. For instance the dollar started being valued at 1/20th of an ounce of gold, and starting in 1933 it began to be devalued in terms of gold or in terms of real good and services, but people, for the most part, only knew it as “a dollar”, not as something less than a dollar and all they saw were prices rising. The same rule would apply to the Roman denarius. No one weighed the coin when they used it in transactions, they just accepted it as if it were the same, even though they were being defrauded.

During the Revolutionary War, the Continental Congress issued paper money on the assumption that it would be redeemed in gold or silver by the states. Then the states themselves began issuing vast quantities of paper money. Congress was issuing fiat paper currency called “Continentals” and most of the army refused to serve unless the Congress paid them in gold or silver. “Not worth a continental” was a common phrase as the Continental Dollar fell to a penny in value.

The Constitution granted Congress the power “To coin money, regulate the value thereof, and of foreign coin.” (Article 1, Section 8) Note that regulating the value meant that they prescribed the weight and fineness of the coin, which specified the value of the coin. The original draft of this provision was going to allow the federal government to “emit bills of credit” (paper money), however this was struck out, “shutting and barring the door against paper currency,” as they said. They felt so strongly about it, that they proscribed the kind of money states could accept. In Article 1, Section 9 it says: “No State shall…emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.” (see Joseph Smith quote also, below)

After the introduction of the gold standard, the War of 1812 and the War Between the States both brought back paper currency. Through the strenuous efforts of Jefferson, Jackson and Lincoln, we again returned to a sound money system. This was upsetting to the financial element in Europe. The London Times came out with this frantic editorial:

“If that mischievous financial policy, which had its origin in the North American Republic during the late war in that country (the Civil War), should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe.” (London Times)

Our “paper” money used to be called certificates, which certified that there was an equal amount of gold or silver deposited in a bank that could be demanded at any time by the bearer of that certificate. A while after the establishment of the Federal Reserve, our paper money became “legal tender” themselves with no link to gold or silver. In fact owning gold was banned in 1933 and what gold people had was confiscated by the Roosevelt administration. President Nixon severed the last link that our currency had to gold in 1973 to “help reduce inflation,” eliminating any check whatsoever on the Federal Reserve’s ability to print money.

The problem with inflation, is that most people are led to believe that inflation equals rising prices. However rising prices are only the effect of inflation. Inflation is simply an increase in the money supply, and when more dollars printed an pumped into the economy, all dollars become less valuable, and producers raise the prices of their goods and services to protect themselves against inflation.

Our rising prices are not just the way life is, they are additional tax burdens placed upon us by a runaway government that the people are no longer interested in holding accountable. As a result, our paychecks buy less, the value of our savings accounts decrease and the value of other nation’s currencies increase (so long as they are inflated at a lower rate). An inflationary policy makes people less likely to be prudent and save their money, and more likely to spend and the people that are hurt the worst are those who are on fixed incomes like the elderly.

“Cutting interest rates” is accomplished by inflating the money supply or “expanding credit”. When banks have more money (starting at the Federal Reserve), they can afford to offer loans at lower interest rates. Because the free market didn’t dictate this lowering, people borrow money and make all kinds of bad investment decisions. They then clamor for the government to do something to bail them out of their situation, and the result is the lowering of interest rates and printing more money.

One example of inflation, and then hyperinflation was in post-war Germany. Inflation was one of the key means of Hitler's rise to power. From 1922 to 1924, the value of a riechsmark to a dollar went from 189 RM to 4,200,000,000,000 RM.

Shortly before World War II, the German government massively inflated the riechsmark to pay off their war-time debts. William L. Shirer stated “German currency had become completely worthless. Purchasing power of salaries and wages was reduced to zero. The life savings of the middle classes and working classes were wiped out. But something even more important was destroyed: the faith of the people in the economic structure of the German society....the government deliberately let the mark tumble in order to free the State of its public debts, to escape from paying reparations....All [the people] knew was that a large bank account could not buy a straggly bunch of carrots, and half peck of potatoes, and few ounces of sugar, a pound of flour. They knew that as individuals they were bankrupt. And they knew hunger when it gnawed at them, as it did daily. In their misery and hopelessness, they made the Republic the scapegoat for all that had happened. Such times were heaven-sent for Adolph Hitler.” (The Rise and Fall of the Third Reich, 1960, p. 61-62)

Our current illustrious chairman of the Federal Reserve is known as “Helicopter Ben,” who quipped that we could avoid a depression, by dumping money out of helicopters to provide a stimulus. The primary figure published by the Federal Reserve for determining the current amount of inflation is M3. The Fed has recently stated that they will no longer be publishing M3 data. However we can see from the sharp rises in gold over the last ten years, that inflation is running rampant, and with the massive amount of debt we are accumulating, we are ripe for a period of hyperinflation, or worse, abandoning the dollar altogether for a supra-national currency.

In addition to this, our currency is inflated in another way through the practice of fractional reserve banking. In simple terms, this is the practice in which banks lend more money than they have. A legitimate form of this is through Certificates of Deposit, where a book entry is made that shows a temporary tranfer of funds — a loan — to the bank. Otherwise the amount of money is on the books twice; once for the account hoder and once for the bank that loans the money. If a individual were to do this with a check it’s called fraud.

Jefferson warned against fractional reserve banking in his own day:

“The banks themselves were doing business on capitals [assets], three-fourths of which were fictitious….This fictitious capital…is now to be lost, and to fall on somebody; it [the bank] must take on those who have property to meet it, and probably on the less cautious part, who, not aware of the impending catastrophe, have suffered themselves to contract, or to be in debt, and must now sacrifice thier property of a value many times the amount of the debt. We have been truly sowing the wind, and are now reaping the whirlwind.” (Thomas Jefferson, Writings of Thomas Jefferson, 10:133.)

For more information on fractional reserve banking, see this article: www.lewrockwell.com/rothbard/frb.html

In his 1993 book Financial Terrorism, John F. McManus noted that “Everything is in place for a rapid increase in U.S. currency. There is no precious metal backing for it; there is virtually no check on how much of it can be issued; and an acceleration of inflation here — brought on by the enormous and growing national debt — could result in a duplication of the horror that befell Germans in 1923-24.”

The problem is reduced to this: Government borrows and spends, but our representatives are too cowardly to raise taxes to the amount that they’re actually spending because the people might then actually do something about it. Instead we are fooled into believing that this is just the way the market works.



Historic Comparison of Gold to a Dollar

The dollar began being defined as 1/20 oz of gold. In the more honest value of goods and services, a 1 oz gold coin would buy a man during the time of Christ, a nice toga, a belt and a pair of sandals. Today, a 1oz. gold coin will buy a man a suit of clothes a belt and a pair of dress shoes. The value of gold has not changed. Today we trust the value of our dollar to the promise of politicians. Does anyone see a problem with that?

The first column is the year, and the second is the dollar value of 1 ounce of gold.

1900$20.67
1901$20.67
1902$20.67
1903$20.67
1904$20.67
1905$20.67
1906$20.67
1907$20.67
1908$20.67
1909$20.67
1910$20.67
1911$20.67
1912$20.67
1913$20.67
1914$20.67
1915$20.67
1916$20.67
1917$20.67
1918$20.67
1919$20.67
1920$20.67
1921$20.67
1922$20.67
1923$20.67
1924$20.67
1925$20.67
1926$20.67
1927$20.67
1928$20.67
1929$20.67
1930$20.67
1931$20.67
1932$20.67
1933$32.32
1934$35.00
1935$35.00
1936$35.00
1937$35.00
1938$35.00
1939$35.00
1940$34.50
1941$35.50
1942$35.50
1943$36.50
1944$36.25
1945$37.25
1946$38.25
1947$43.00
1948$42.00
1949$40.50
1950$40.25
1951$40.00
1952$38.70
1953$35.50
1954$35.25
1955$35.15
1956$35.20
1957$35.25
1958$35.25
1959$35.25
1960$36.50
1961$35.50
1962$35.35
1963$35.25
1964$35.35
1965$35.50
1966$35.40
1967$35.50
1968$43.50
1969$35.40
1970$37.60
1971$43.80
1972$65.20
1973$114.50
1974$195.20
1975$150.80
1976$145.10
1977$179.20
1978$244.90
1979$578.70
1980$641.20
1981$430.80
1982$484.50
1983$415.00
1984$331.30
1985$354.20
1986$435.20
1987$522.90
1988$441.00
1989$433.40
1990$423.80
1991$379.90
1992$356.30
1993$419.20
1994$409.80
1995$385.60
1996$367.80
1997$288.80
1998$288.00
1999$287.50
2000$272.15
2001$278.70
2002$346.70
2003$414.80
2004$438.10
2005$517.20
2006$636.30
2007$833.20
2008$950.00




Oil Price In Terms of Gold

If oil prices have been rising for you, maybe you’ve just been using the wrong currency…

Gold (oz)Crude Oil
(Average Yearly
Price Per Barrel)		Oil Price
In Terms of Gold
2000$290$250.086
2001$279$280.100
2002$347$260.075
2003$415$290.070
2004$438$320.073
2005$517$470.091
2006$636$650.102
2007$833$650.078
2008$905$1060.117




For further verification see this Wall Street Journal article: Oil and the Dollar



Quotes

“Inflation: an increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices.” (Webster's New Twentieth Century Unabridged Dictionary of the English Language, 1957)

--

“Inflation is simply an increase in the money supply. It is accomplished by debasing or devaluing it if it is paper currency. In 20th Century American political lingo, inflation has been made to mean a general rise in prices. The rise in prices, however, is the effect; the increase in the money supply—inflation—is the cause.” (Clarence Carson, Basic Economics)

--

“What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless. It plays an important role in fomenting the popular tendencies towards inflationism.” (Ludwig von Mises, Human Action)

--

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By continuing process of inflation, governments can confiscate, secretly and unobserved, and important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls...become “profiteers,” who are the object of hatred of...[those] whom the inflationism has impoverished....As inflation proceeds...the process of wealth-getting degenerates into a gamble and a lottery.

“Lenin was certainly right. 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. (John Maynard Keynes, The Economic Consequences of the Peace, p. 235, Emphasis Added)



It is Not Meet That I Should Command in All Things

“The devil knows that if the elders of Israel should ever wake up, they could step forth and help preserve freedom and extend the gospel. Therefore the devil has concentrated, and to a large extent successfully, in neutralizing much of the priesthood. He has reduced them to sleeping giants. His arguments are clever....Second: “You're too involved in other church work,” says the devil. But freedom is a weighty matter of the law; the lesser principles of the gospel you should keep but not leave this one undone. We may have to balance and manage our time better. Your other church work will be limited once you lose your freedom as our Saints have found out in Czechoslovakia, Poland, and many other nations.” (Elder Ezra Taft Benson, Conference Report, April 1965 Afternoon Meeting, 125, Emphasis Added)


Lessons From the Book of Mormon

“The Book of Mormon narrative is a chronicle of nations long since gone. But in its descriptions of the problems of today's society, it is as current as the morning newspaper and much more definitive, inspired, and inspiring concerning the solutions of those problems.

“I know of no other writing which sets forth with such clarity the tragic consequences to societies that follow courses contrary to the commandments of God. Its pages trace the stories of two distinct civilizations that flourished on the Western Hemisphere. Each began as a small nation, its people walking in the fear of the Lord. But with prosperity came growing evils. The people succumbed to the wiles of ambitious and scheming leaders who oppressed them with burdensome taxes, who lulled them with hollow promises, who countenanced and even encouraged loose and lascivious living. These evil schemers led the people into terrible wars that resulted in the death of millions and the final and total extinction of two great civilizations in two different eras.” (Gordon B. Hinckley, First Presidency Message, Ensign, August 2005, Emphasis Added)

Communist Manifesto, Fifth Plank: “Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.”

“Yet the individual is handicapped by coming face to face with a conspiracy so monstrous he cannot believe it exists. The American mind simply has not come to a realization of the evil which has been introduced into our midst. It rejects even the assumption that human creatures could espouse a philosophy which must ultimately destroy all that is good and decent.” (FBI Director J. Edgar Hoover, The Elks Magazine, August 1956)