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by Eric Englund & Karen De Coster
"Government
cannot make man richer, but it can make him poorer."
–
Ludwig von Mises
Personal
character and money are linked. No, we are not implying that
a person of great wealth is necessarily an individual with
high character. All one needs to do is look at the moral sewer
known as Wall Street in order to comprehend how a whole host
of elites have traded their souls for mind-boggling sums of
money.
The linkage
between character and money has everything to do with self-ownership.
Aside from one's body, the most personal property one may
possess is the fruit of one's labor. In a capitalist society,
typically, this labor gets rewarded in the form of money —
a paycheck. Hence, a person's sense of value and self-worth
is significantly influenced by how society values his labor
— with money not only being that most personal asset,
but also being the measuring rod. In days gone by, an individual
developed character by learning that an honest day's work
would be rewarded with honest money (i.e., gold). Never has
there been a more stable measure of value than gold.
In 1913,
at the behest of the richest and most powerful banking elites
in the world, an agent of social decay was established in
the United States. Indeed, the Federal Reserve was founded.
The stabilizing influence of gold money, gradually, was replaced
by government fiat. Consequently, the character of Americans
depreciated in lockstep with its fiat currency.
Paul
Cantor describes this phenomenon in his provocative essay
Hyperinflation
and Hyperreality: Thomas Mann in Light of Austrian Economics.
To wit:
Inflation
is that moment when as a result of government action the
distinction between real money and fake money begins to
dissolve. That is why inflation has such a corrosive effect
on society. Money is one of the primary measures of value
in any society, perhaps the primary one, the principal repository
of value. As such, money is a central source of stability,
continuity, and coherence in any community. Hence to tamper
with the basic money supply is to tamper with a community's
sense of value. By making money worthless, inflation threatens
to undermine and dissolve all sense of value in a society.
Over
the past ninety-three years, since the founding of the Federal
Reserve, the dollar has depreciated by over 95%. With money
no longer being a stable repository of value – thanks
to inflation – a predictable shift in the American character
has occurred. Gone are the low-time-preference days where
hard work and savings paved the road to a better life for
parents and children.
As our
fiat money perniciously lost value, time preferences shifted
upwards as it made more sense to spend a depreciating currency
today than save for the future. And, better yet, what is more
seductive than to borrow ever-depreciating fiat money –
as heavily encouraged by the Federal Reserve – and pay
the principal back with money that has become worth even less?
Gradually, savings becomes a vice, profligacy a virtue, and
the character of a people regresses to a permanent state of
adolescence — as all sense of value is forgone in favor
of instant gratification.
Without
a doubt, the measuring rod of money is broken. Indeed, money
is loaned into existence by the Federal Reserve's banking
cartel. Fractional-reserve banking allows it to be created
out of thin air. Who needs a gold standard for self-measurement
when any adult with a pulse can borrow and spend hundreds
of thousands of dollars on McMansions, luxury automobiles,
flat screen TVs, country club memberships, and spare-no-expense
vacations? What a wonderful life the Federal Reserve has brought
to Americans! Easy money and credit bring immediate indulgence.
As long as you have absolutely no fear of debt, you too can
look extremely successful without ever having had to save
a dime. Accordingly, this has given rise to America's new
insolvent class: the two-thousandaires.
Let's
delve a little further into the characteristics of a two-thousandaire.
To be sure, they appear successful — with the nice house,
great cars, enormous entertainment center, boutique clothes,
and most of it purchased on credit. For the most part, two-thousandaires
do not have high-paying jobs. They just live beyond their
means. Moreover, these debt-ridden adults live from paycheck
to paycheck. There are no savings to fall back upon when that
rainy day comes. Just imagine having hundreds of thousands
of dollars in debt and only $2,000 in cash savings. Not to
worry. This is what credit cards and home equity lines of
credit are for. The Federal Reserve will always ride to the
rescue with more fiat money and credit.
Americans
are stepping up to mainline this new kind of drug known as
debt. Instant money, after all, is something that provides
on-the-spot gratification and pacifies their anxieties about
their status in the social order. Indeed, one can have it
all, at the drop of a (fiat) coin, and without the standard
save-and-wait period which earlier generations experienced.
Consumerism,
then, is funded either by an honorable means — via
the fruits of one's productive labor — or by a coercive
monopoly of the money-making function through the endorsement
of a banking cartel that exploits a fractional reserve banking
system to expand the money supply. This enables, as
Jörg Guido Hülsmann remarks, "the accumulation
of debt beyond the level debts could reach on the free market."
This illusion of prosperity is the sort of state-created decadence
that we criticize.
Ultimately,
this dependency on credit is tantamount to being dependent
upon the state. With hundreds of thousand of dollars of debt,
and little savings, two-thousandaire parents serve as negative
role models demonstrating that financial independence and
self-reliance are unimportant. Children see that parents simply
muddle through life trying to pay bills for all of the goodies
while praying that no medical, home, or other expenses emerge
unexpectedly. The lesson children learn is that one must not
think about the consequences of one's actions — moral
relativity takes root. If mom or dad loses a job, then the
family can always turn to the state for welfare and credit
relief. Accordingly, it is the state that provides solutions
— not parents.
America's
middle class, as personified by the two-thousandaire, is on
the cusp of absolute moral and financial collapse. With the
demise of the gold standard and the rise of fiat money, the
character of a people has been hollowed out. Strong indicators
of this include the trend toward relativism along with the
abandonment of the basic self-ownership concept of being responsible
for one's own body. Modern moral developments are such that
one's body merely becomes a vessel seeking one form of amusement
after another. Life itself becomes a video game. The game
goes on as long as it is fueled by the central bank's easy
money and credit policies.
As adherents
to Austrian economics know, the Federal Reserve-induced economic
boom must turn to bust. People who have lived high, yet have
truly earned nothing, will not fare well in the coming bust.
Such cash-strapped and indebted families will head toward
financial collapse and thus will turn to the state for welfare
and credit relief. As to welfare, parent and child become
virtual wards of the state. And, tragically, a person's self-worth
shall now be measured by whether or not some faceless bureaucrat
deems him worthy to receive a welfare check. Dependency on
the state will become deeper and more entrenched. Bureaucrats
will promise security and democratically sanctioned wealth
transfers (i.e., welfare) in exchange for votes and loyalty.
With
regard to credit relief, bankruptcy has long been a safe haven
for those engaged in Fed-fueled financial irresponsibility.
The purpose of Chapter 7 bankruptcy law has been to give a
person who is overburdened with debt a clean slate by wiping
out his or her debts. Chapter 7 has thus continually granted
debtors a "fresh start" by clearing out their debts
and allowing for the preservation of the assets they acquired
while undertaking the debt. It's a win-win situation for the
financially irresponsible.
On October
17, 2005, new bankruptcy laws went into effect that subjected
filers to a means test, thus throwing potential Chapter 7
debtors into Chapter 13 reorganization status. According
to the Administrative Office of the Courts, Chapter 7
filings, historically, have averaged about 100,000 per month.
In October 2005, the month the new laws went into effect,
the number of filings reached 555,531 as filers rushed to
dump their debt before the deadline, otherwise they'd be forced
into the more difficult, reorganization requirement. The following
month, with the easy debt-dumping made somewhat harder, only
5,762 Chapter 7 filings surfaced. The message is that the
Federal government can create the problem in the first place
– through the sanction of a legal monopoly — and
further distort the problem through its creation of moral
hazard among the most fiscally reckless debtors within society.
Then the Feds can take away that which they granted by an
arbitrary swipe of the pen via administrative law and thus
change the face of the game once again.
The loan
markets are profoundly distorted due to the nature of fiat
money machinations. Because of this intervention, lending
is now dramatically different. It is no longer necessary to
know your borrowers. The bank – sustained by its cat-and-mouse
scheme of fractional-reserve banking — has a huge incentive
to fund the loan, and then sell the loan off to intermediaries
who package the loans into mortgage-backed securities. In
turn, this toxic junk is sold to mutual funds, insurance companies
and other institutions starved for yield. The debt-o-rama
grabs hold, and as for the borrowers, there is no longer a
fear of debt.
In this
case, consumerism is not funded through the increase in capital
accumulation and production, or rather, bona fide prosperity.
Ludwig von Mises stressed that easy credit could not be equated
with prosperity:
It is
not real prosperity. It is illusory prosperity. It did not
develop from an increase in economic wealth. Rather, it arose
because the credit expansion created the illusion of such
an increase. Sooner or later it must become apparent that
this economic situation is built on sand.
Prosperity,
in fact, has come to be replaced by illusions as debtors ride
the roller coaster of cheap money and become more highly-leveraged,
thus dissolving their financial independence. Long-range planning
ceases to progress, and in fact it abruptly retards as the
debtors become more focused on daily survival. They abstain
from long-term strategy in order to sustain current, day-to-day
operations. Hence the government-coerced shift of time preferences
from low to high as we move from an economy of saving and
capital investment to one of spend-and-consume. Consequently,
we witness the decline of savings, wealth, and legitimate
entrepreneurial investment — all of which are necessary
for the advancement of a free market economy.
Is it
possible that the two-thousandaire is merely a precursor to
the "new man" (a pliant, unthinking being) Mao and
Lenin attempted to socially engineer via central planning?
It would seem that the communists had it backwards thinking
that banning money was integral to transforming mankind. For
it certainly appears that easy money and credit do the trick
in eroding the human spirit, morality, and basic decency,
along with intellectual and financial independence.
Monetary
central planning, as perpetrated by the Federal Reserve, provides
the key to hollowing out and creating a pro-statist populace.
So when the bust occurs, watch out for the two-thousandaire
— he is going to vote to pick your pocket.
Karen
De Coster, CPA, has an MA in Economics, and is an accounting
and finance professional in Detroit. See her website and blog
at www.karendecoster.com.
Send her mail.
See her articles.
Sources
and recommended reading:
Cantor,
Paul. "Hyperinflation
and Hyperreality: Thomas Mann in Light of Austrian Economics."
The Review of Austrian Economics 7, No. 1 (1994): 3-29.
Grant,
James. The
Trouble with Prosperity: A Contrarian's Tale of Boom, Bust,
and Speculation. 1996. New York: Random House.
Hülsmann,
J.G. The
Cultural and Spiritual Legacy of Fiat Inflation.
Mises,
L. von (1931), "The
Causes of the Economics Crisis: An Address," On
the Manipulation of Money and Credit, Ludwig von Mises
Institute (2002), Auburn, pp. 188.
June
26, 2006
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