Ethics Money Production by Jörg Guido Hülsmann

Author:Jörg Guido Hülsmann [Hülsmann, Jörg Guido ]
Language: eng
Format: epub
Publisher: Ludwig von Mises Institute

7. THE DEBT YOKE

Some of the foregoing considerations also apply outside of the business world. Fiat inflation provides easy credit not only to governments and firms, but also to private persons. The mere fact that such credit is offered at all incites some people to go into debt who would otherwise have chosen not to do so. But easy credit becomes nearly irresistible in connection with another typical consequence of inflation, namely, the constantly rising price level. Whereas in former times the increase of prices has been barely noticeable, in our day all citizens of the western world perceive the phenomenon. In countries such as Turkey or Brazil, where prices have increased until recently at annual rates of 80 to 100 percent, even younger people have personally experienced it.

Such conditions impose a heavy penalty on cash savings. In the old days, saving was typically done in the form of hoarding gold and silver coins. It is true that such hoards did not provide any return—the metal was “barren”—and that they therefore did not lend themselves to the lifestyle of rentiers. But in all other respects money hoards were a reliable and effective form of saving. Their purchasing power did not just evaporate in a few decades, and in times of economic growth they even gained some purchasing power. Most importantly, they were extremely suitable for ordinary people. Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets. Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.

Now compare this old-time scenario with our present situation. The contrast could not be starker. It would be completely pointless in our day to hoard dollar or euro notes to prepare for retirement. A man in his thirties who plans to retire thirty years from today (2008) must calculate with a depreciation factor in the order of 3. That is, he needs to save three dollars today to have the purchasing power of one of these present-day dollars when he retires. And the estimated depreciation factor of 3 is rather on the low side! It follows that the rational saving strategy for him is to go into debt in order to buy assets the price of which will increase with the inflation. This is exactly what happens today in most western countries. As soon as young people have a job and thus a halfway stable source of revenue, they take a mortgage to buy a house—whereas their great-grandfather might still have first accumulated savings for some thirty years and then bought his house with cash.

Things are not much better for those who have already accumulated some wealth. It is true that inflation does not force them into debt, but in any case it deprives them of the possibility of holding their savings in cash. Old people with a pension fund, widows, and the guardians of orphans must invest their money into the financial markets, lest its purchasing power evaporate under their noses.

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