INFLATION, THE RUIN OF MONEY AND SOCIETY
by Dr. Lawrence Wilson
©
May 2024, LD Wilson Consultants, Inc.
In
The Economic Consequences of the Peace
(1920), John Maynard Keynes (who is not my favorite author) observed:
ÒLenin (the
founder of the former communist Soviet Union) 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 diagnoseÓ.
Many people
do not realize that inflation is with us, and it is an extremely destructive
hidden tax, especially on the poor of all nations of the world. Inflation reduces the buying power of
your money, so you become poorer, even if you have the same amount of money in
the bank or in your pocket.
Suppose, for
example, the inflation rate is 3.5%. If you have $30,000.00, in ten years it will only buy
$20,550.00 worth of goods. If the
inflation rate is 5.5%, (which is closer to reality, as inflation is often
underestimated by the governmentÕs measurements), your $30,000.00 is worth only
$16,650 in ten years. This should
be enough to scare anyone. Let us
explore what inflation is and why it is occurring.
WHAT
EXACTLY IS INFLATION?
People
believe that inflation is rising prices.
That is not quite true. Inflation
means there is more money out there chasing the same number of goods and
services. As a result, the
value of the money is diluted. One
result is higher prices. There are
also other negative consequences, as we will explore below.
Inflation is
like if a person were to slowly add water to our gasoline. You might not notice the difference at
first. But after a while, the gas
would not power your car as well and eventually it would not work at all. Your gasoline would no longer have the
value it had before. Another
common analogy is that it is like adding a little water to the milk that is
sold in the store. For a while, no
one might notice at all. However,
the milk is less nutritious, and wonÕt taste quite right. Eventually, the people wake up and
realize the milk is not nearly as good, although it might still look okay.
Since the
money is diluted, it does not work as well and it takes more of it to buy
things. For example, good, solid
money 100 years ago could buy a nice house for about $20,000.00. Today, with the diluted money, it takes
$200,000.00 or more to buy the same house. Higher prices are just a way we express the fact that the diluted
money of today does not buy as much.
INFLATION
AS A HIDDEN TAX
Inflation is
actually an old, secret method of taxing the people without their
knowledge. This may sound strange
because no one talks about inflation as a tax. However, I will explain.
When extra
money is printed up and put into circulation, it costs the government very
little. The only cost is that of
printing. Each paper bill of any
denomination from $1 To $1,000 or more costs less than fifty cents to
manufacture. So it is almost free
money for the government.
They just
run the printing press and it suddenly exists. It seems like they can create value out of nothing. It is wonderful for the government,
which is why most governments do it all the time. Most nations, by the way, do it far more than the United
States. We are not used to
inflation, but in other nations of Africa and Asia, it is business as usual.
The
government can then lavish the money on all their favorite projects without
worrying about the people complaining, because the money seems to be ÒfreeÓ.
However, it
is not free. What it does is to
slowly dilute the money that is in existence already, like diluting the milk in
the analogy above. So all the
money the people already have, including all their savings, salaries and all
the rest, slowly start to be worth less.
In this sense, inflation is a very hidden tax, or way the government
confiscates the peopleÕs real wealth.
If the
government gave its new printed money to each of us to spend, it wouldnÕt be so
bad. Then at least we would all
have more of the diluted or less valuable money. But they never do this, as a rule. They give it their favored friends and
projects. Everyone else is just
cheated out of some of their wealth.
This is indeed a sneaky way to tax people because:
á
It happens so slowly that few people see it.
á
It is hidden, as there are no tax forms to fill out or taxes
added to your purchases or bills.
á
Unlike other taxes, no one seems to force you to pay up on
April 15 or any other day
á
People actually feel richer because often their salary and
the price of their house goes up.
In fact, many actually have more money, but of course all that cash is
worth less.
á
Inflation does not require any new laws that people could
debate and vote down. Thus it happens silently and secretly.
WHY,
THEN, ARE SOME PRICES LOWER TODAY?
Inflation
has caused the price of land, cars, houses, energy and other things to rise
dramatically over the past 50 years or so. However, a few items seem to be
getting less inexpensive today, like computers and even clothing. This is occurring for several reasons:
1.
New technology has dramatically reduced production costs in some
areas. This helps keep some prices
low.
2.
Innovation reduces the cost of certain items like electronics. For example, todayÕs computers are
simply much more advanced than those of 10 or even 5 years ago. We get more for our money.
3.
Lower wages that are paid to workers in nations such as China, India, Vietnam
and others also help keep prices down.
4.
Our trading partners such as China, Japan, Canada and Europe are all inflating
their currencies. In fact, some
are doing so faster than we are in the United States. We are in a curious situation with competitive destruction
of the currencies by a number of nations.
This keeps the cost of many foreign goods lower, as well.
5.
As more nations become developed and join the family of industrializing
nations, more goods and services are being offered. In this sense, the larger amount of
printed money is not chasing the same number of goods and services. Instead, the number of goods and
services is also increasing. This
also offsets some tendency for inflation.
6.
A deceptive reason for some lower prices today is the goods are not as high
quality. For example, I have some older bed
linens, for example, and even coats that were left to me by my parents when
they died. They are much better
made than most linens today, and have lasted far longer. This concept is sometimes called planned obsolescence. It is a fancy way of saying that things
are made cheaply. It is not all
bad, because it enables us to buy the most energy-efficient new things, for
example. However, it wastes a lot
of resources and creates a lot of extra garbage, at times, as people throw away
equipment that breaks quickly, for example.
THE
DARK SIDE OF INFLATION
Printing
paper money that is not backed by gold and silver has many other negative
effects connected with ever-higher prices and price instability. Here are just a few:
á
Businesses and individuals cannot plan for the future nearly
as well. They simply cannot depend
on stable raw material and other prices.
Instead, they are forced to hoard goods, buy things they may not need
but can use as bargaining chips and do other things that are costly and often
counterproductive.
á
Businesses are often far more afraid to take risks in
inflationary times. They simply
donÕt know what the future will bring.
This is terrible, because businessmen taking risks is critical for
innovation, research and development of new products and new technologies.
á
People lose faith in the government and in each other. Everyone has a tendency to believe that
everyone else is cheating them.
This causes social unrest, crime, violence, and other social problems.
á
Because planning is so difficult, maintaining a business or
even a household becomes far more difficult. This causes many more bankruptcies, foreclosures, loss of
homes and businesses and other very disruptive effects on society.
á
As social unrest grows, strikes, protests and riots occur
more frequently because so few people understand inflation and how to cure
it. Anger mounts and civil society
disintegrates.
á
Inflation encourages people to go into debt. After all, when the time comes to repay
your loan, you can do it with inflated and less valuable dollars. It is like borrowing good quality
gasoline and being allowed to repay it in diluted gasoline. This favors those who are not the
productive people in society and it punishes those who save their money. This is not at all healthy for society.
á
It is very tough for the working and middle classes in
particular. They often depend on
their labor, which is just not bringing them as much money as it did
before. They donÕt have assets
that appreciate with inflation such as large homes and some stocks. Thus the poor people are hurt the
most. Even beggars and those on
welfare are hurt badly as they find their limited means just wonÕt buy as much
as before.
á
People who are used to saving some money find they cannot
save money or the money they have saved is worth much less. They also feel cheated and become angry
and fearful.
á
Basically, it impoverishes the people and ruins the health
of society.
á
It also tends to destroy democratic principles and
substitutes a welfare type of state that rewards its friends and punishes its
enemies by withholding money. This
leads to distrust, anger and often revolution and decay of society.
PREVENTING
INFLATION
Inflation is
really the most terrible of crimes.
The American founding fathers knew this well and did their best to
prevent it. The United States of
America, among all nations, is perhaps the only one that has written into its
Federal Constitution that Òno state shall É make any thing but gold and silver coin a tender in
payment of debtsÓ. - Article I, Section 10.
This was put
into the Constitution specifically to prevent inflation. Unfortunately, this intent was violated
almost 100 years ago. The American
people need to find Supreme Court and other justices who actually understand
the intent and the wisdom of the original Constitution so as to prevent the
government from violating this important clause concerning the nationÕs money.
All paper
money in America, by law, must be redeemable in gold or silver. This was the case for years. Old dollar bills printed before 1913,
or perhaps even later, all were required to state ÒRedeemable in SilverÓ.
You might
ask, how is it possible that our government can just ignore the
Constitution? It is largely
because the people are totally ignorant of the Constitution. It is taught poorly if at all in public
school. Also, there is a
prevailing attitude that the Constitution is just an old piece of paper. Judges have ignored its intent, often
at whim, and their understanding of it is limited.
Finally,
there is much corruption in the government. We have elected many representatives who care more about
money or power than they do about following the law. I hope this will change as more people understand inflation,
and that our leaders need to be held accountable for their actions.
The only way
to prevent inflation, as far as I know, is to have an honest government that is
not permitted to print endless amounts of money. The best way to do this is to have a gold standard, or something
similar, so that the government is forced to put some value behind their paper
money.
WHAT
CAN A PERSON DO ABOUT INFLATION?
Live healthfully. The reason for this is that when
inflation really hits, the health care system will be cut back. This is especially the case if it is a
government-run system. Costs will
rise and the government usually just cuts back services to save money. This website is full of articles on how
to live healthfully and prevent most diseases.
Call
and write your representatives in the state and federal governments. Tell them:
á
They must stop spend so much money.
á
They must work to get the nation out of debt.
á
They must not print more paper money, or just create
electronic book entries, also called Òmonetizing the debtÓ.
á
They must return the nation – all nations - to a gold
standard. This would effectively
prevent the government from just printing money because all the paper money
would have to be backed by gold.
This means that anyone could turn in their paper dollars for real gold
coins that cannot be faked or just Ôprinted upÕ at random.
Inflation
hedges.
These are investments, basically, that tend to hold their value in a time of
inflation. They include any
tangible items that are useful to people, such as cars, houses, tools,
equipment, land or real estate, electronic devices that donÕt go out of date
quickly, even good clothing, shoes and other real goods.
Another
inflation hedge is to own some gold or silver in some form, since its value
usually goes up with inflation.
Finally, if someone has extra money to invest, one could talk with an
accountant or financial counselor about other investments that are likely to
increase in value if inflation gets worse. These might be selected stocks or other things. Be very careful with investment
advisors, however, as many are not honest.
Also, do not
live beyond your means. Save some
money in the form of coins or other tangible goods.
THE
ACTUAL SITUATION TODAY
TodayÕs
inflation is unique, in a way, because almost all nations are inflating their
money. It is like a competitive
race to see who can destroy the currency fastest. This is horrible.
However, it has some interesting consequences. If only one nation inflates its money, that nation would be
doomed. Many people say this about
the USA, for example. However,
today most nations are inflating their money and the USA is just starting to
Ôgo with the crowdÕ.
Therefore, I
believe the doomsayers are somewhat wrong about the downfall of the USA. I am guessing that all prices will rise
slowly, most likely, although gold prices could climb faster. In fact, they have more than increased
five or six times since around 1991, along with a few other prices like health
care costs and land values in some places.
Worldwide
inflation tends to Òspread the miseryÓ somewhat, and it will be the worst in
the nations that are most fiscally irresponsible.
BENEFITS
OF INFLATION
Inflating
the money is a horrible crime.
However, as with most things in life, it can have a few hidden benefits:
á
It is bringing many people back Ôdown to earthÕ, so to
speak, forcing them to think about their purchases, their investments, and what
is real and what is fluff in their lives.
This is actually a spiritual benefit that unfortunately usually requires
some pain and deprivation.
á
Inflation often follows a period of prosperity where people
get lax and allow the government to violate the law, as has happened in
America. So it is a wakeup call
for many people that eventually is helpful for society if it can return to
sound monetary and governmental policies.
á
It
is good for some businesses that borrow money. They can repay with cheaper dollars, so at least it seems
like a benefit. Unfortunately,
interest rates usually rise in inflationary times, so borrowing tends to cost
more, offsetting some of the benefit.
á
Inflation
tends to teach a good lesson, which is: Do
not trust the government.
This is a lesson most Americans and others around the world need to
learn. It was clear to the
founders of America, but liberal teachers and leaders have convinced many
people that government is benign, when it is never the truth.
George
Washington said ÒGovernment is force.
It may be necessary, but government is never good.Ó Thomas Jefferson expressed the same
idea when he wrote: ÒThat government is best that governs leastÓ.
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