AUGUST 8, 2022
Samuel Gregg, in his article on the French economist, Jacques Rueff, provides a timely reminder that inflation is much more than a merely economic phenomenon. It also has profound social effects. This, of course, was recognised by Keynes himself in the book that made him famous, The Economic Consequences of the Peace. He recognised that inflation functioned as a transfer wealth from creditors to debtors, thus upsetting the previous social equilibrium; and he also quoted Lenin to the effect that the debasement of the currency was a sovereign method of producing revolutionary change.
Not all inflation is equally dramatic, of course. The grandfather of a German friend of mine once owned a portfolio of mortgages on valuable properties and soon found himself in possession of pieces of paper of less value than yesterday’s newspaper. Apparently, he took this loss philosophically and never turned to political extremism; he was later sent to Buchenwald. Not everyone in these circumstances stayed sane or decent, however.
But even less catastrophic levels of inflation have profound psychological, or perhaps I should say characterological, consequences. For one thing, inflation destroys the very idea of enough, because no one can have any confidence that a monetary income that at present is adequate will not be whittled down to very little in a matter of a few years. Not everyone desires to be rich, but most people desire not to be poor, especially in old age. Unfortunately, when there is inflation, the only way to insure against poverty in old age is either to be in possession of a government-guaranteed index-linked pension (which, however, is a social injustice in itself, and may one day be undermined by statistical manipulation by a government under force of economic circumstances, partly brought about by the very existence of such pensions), or to become much richer than one would otherwise aim or desire to be. And the latter turns financial speculation from a minority into a mass pursuit, either directly or, more usually, by proxy: for not to speculate, but rather to place one’s trust in the value of money at a given modest return, is to risk impoverishment. I saw this with my own father: once prosperous, he fell by his aversion to speculation into comparative penury.
With the concept of enough go those of modesty and humility. They are replaced by triumph and failure, the latter certain almost by definition to be the more frequent. The humble person becomes someone not laudable but careless of his future, possibly someone who will be a drain on others insofar as he has failed to make adequate provision for himself – even if, given his circumstances, it would have been impossible for him to have done so. For notwithstanding technical progress, automation, and robotics, we shall need people of humble and comparatively ill-paid employment for the foreseeable future.
Inflation plays havoc with the virtue of prudence, for what is prudence among the shifting sands of inflation? When inflation rises to a certain level, it is prudent to turn one’s money into something tangible as soon as it comes to hand, for tomorrow, as the song goes, will be too late. Everything becomes now or never. Traditional prudence becomes imprudence, or naivety, and vice versa.
From Law and Liberty, here.