The Social Discontent that Accompanies a Centrally Planned Monetary System

Money is a vital part of any well-developed economy – in fact, it is no exaggeration to say that most of our lives depend on the existence of a monetary medium. This importance puts a great deal of power into the hands of the monopoly producers of money (i.e. central banks). Moreover, to quote Spiderman (!), ‘with great power comes great responsibility’. In the same way that a sound money can enrich our lives, an unsound money can sour our experiences. Unfortunately, the current monetary system is a major instigator of recurring ‘clusters of error’ (to quote Jörg Guido Hülsmann). Widespread social discontent is just one symptom of the current monetary system.


Wise Words from Irving Fisher:


In his fantastic little book, The Money Illusion (available at the book store), Irving Fisher described the social discontent that arose from the waves of inflation and deflation that plagued the gold-standard.


The very fact that the people do not understand the change in the buying power of the dollar leads them to discontent. For instance, when inflation is going on and wages lag behind prices, the workman often thinks the employer is in some sort of a game to defraud him of every increase of wages by raising the cost of living against him.


An alienist who became interested in this problem remarked that unstable money seemed a sort of social insanity analogous to insanity in an individual. The individual who has an “unconscious conflict” does not know what ails him, but is restless and assigns the blame to the wrong cause. The public likewise do not understand inflation and deflation with their attendant evils, but do have a keen sense that someone is benefiting at their expense.


This description is quite relevant to our age. We have the same (if not magnified) periods of inflation and deflation where wage-earners consider themselves left with the short straw. During the waves of inflation, the wage-earner finds himself struggling to keep up, whereas during the waves of deflation, the wage-earner struggles to earn at all (i.e. unemployment rises etc.). With the seeming randomness of these periods of inflation and deflation, it is no wonder that wage-earners tend to feel discontented about other social classes (most notably, the classes of employers & speculators).


The source of the average wage-earner’s ailments lies in a rather convoluted and peculiar field – that is, in the field of the current monetary system. Indeed, if we were to define the source with even greater precision, we cannot help but attribute it to the wage-earners themselves. For – as Etienne de la Boetie eloquently wrote in the 16th century – it is the mass of ruled people (in this case, ruled into the use of fiat currencies) that consent to being ruled. Murray N Rothbard summarized Boetie’s central insight very well:


This fundamental insight was that every tyranny must necessarily be grounded upon general popular acceptance. In short, the bulk of the people themselves, for whatever reason, acquiesce in their own subjection. If this were not the case, no tyranny, indeed no governmental rule, could long endure. Hence, a government does not have to be popularly elected to enjoy general public support; for general public support is in the very nature of all governments that endure, including the most oppressive of tyrannies. The tyrant is but one person, and could scarcely command the obedience of another person, much less of an entire country, if most of the subjects did not grant their obedience by their own consent.


I suspect that the consent that is granted to central banks is grounded in ignorance more than anything else. As can be seen by these propaganda posters, the Federal Reserve was founded on a platform of ‘providing funds to businesses in need’. This – of course – is a flagrant abuse of words and prejudices. The emotional concept of ‘need’ is used to expound something that is philosophically unsound.


If we take a moment to consider the word ‘need’, we find that there is always a [in order to do X] tacked onto the end. In the cases where X is inherently embedded into everyone’s objectives/perceptions (i.e. by nature of their humanity), then this [in order to do X] can be omitted. This is clearly not one of those cases, so we must admit that ‘need’ (here) is used with an implicit [in order for them to stay in business]. That is, the Fed was set-up on the platform of stopping bad businesses from going bust. This kind of denial of reality goes against the sanctity of the free market (‘the invisible hand’) and its capacity to do good.


More on the Tensions between Employer & Employee:


A great deal of social discontent pertains to the seemingly perennial ‘employment problem’. No matter what the central planning authorities do, they somehow cannot get employers and employees to ‘find deals’ with one another.


Even the most reasonable workmen as well as the most reasonable employers are apt to get into disagreements because of unstable money. Unstable money is, as Lord Vernon has well pointed out, a chief cause of bad industrial relations.


When the price level is rising the workmen complain, as we have seen, of the high cost of living and demand higher wages. This is a reasonable demand, but the employers are likely to resist, especially if they have a long-time contract or understanding with the workmen. A strike is often the result of the difference between these two viewpoints.


When, on the other hand, the price level is falling the employers try to reduce wages. This also is reasonable, but the workmen are almost certain to resist, especially if they have a contract or understanding to their advantage. A lock-out is likely to result.


Again, Irving Fisher lucidly explains how the waves of extended inflation and deflation tend to antagonize either employer, employee or both. These tensions are wholly evident today – indeed, they explain the plethora of employment laws and regulations.


Tensions between Creditor & Debtor:


Particularly in Europe, the word ‘speculator’ has become a pejorative term. Irving Fisher thought that this was – again – a result of miscomprehension of money. When people try to attribute blame in matters that they do not understand, they become subject to the whim of those who claim to know something. In this case, governments love to blame speculators (be it on the long-side or short). As people are generally oblivious to the true causes, they tend to shoot the messenger:


When the price level is falling, the money-lender (the bondholder) is getting the advantage of the changing conditions and the public nickname him, as in the Bryan days of 1896, the “goldbug of Wall Street” or the “bloated bondholder.” These, the banker and the money-lender, become the targets of popular discontent. When, on the other hand, the price level is rising the public blame and denounce the profit-taker and nickname him a “profiteer”.


As we have seen, in neither case is the imputed blame by the public justified; the “bloated bondholder” could not help benefiting by falling prices and the profit-taker could scarcely help benefiting by rising prices. In 1919, a lumber merchant in central New York, not wishing to be called a profiteer, tried at first to charge for his lumber on the basis of arbitrary percentages, just as the Austrian bank figured the charge for its products in its paper mills. He suddenly woke up to the absurdity of the situation when he found that he was unwittingly selling his lumber not to the public, which he was trying to save from “profiteers, but to the wholesale dealers from whom he had originally bought it! They found they could buy lumber of him more cheaply than they could get it from the lumber mills!


Peculiar Tendencies on a Global Scale:


These frustrations between various entities are not exclusively present within a country’s borders. Rather, due to the profound interconnectedness of fiat currencies across the globe, the pockets of social discontent spread – likewise – across the globe. To name an example, US government officials have repeatedly accused China of being a ‘currency manipulator’ in recent years.


Russell Napier has often talked about the issues surrounding the interconnectedness of Western & Developing monetary policies. He talked about some of these issues in a recent interview with the FT:


Due to the prominence of dollars-denominated assets on the balance sheets of EM central banks – monetary stimulus in the US has a profound impact on Emerging economies (in particular, Asian economies). The recent stimuli have lead to intolerable levels of inflation (via credit growth) in emerging economies. Russell thinks that this will eventually lead to a revaluation of emerging market currencies away from the dollar. In this case, the centrally planned monetary system has lead (or will lead) to social discontent on a global scale.




With the increasingly meddled-with monetary system, we find that errors and frustration have become increasingly prevalent. Only once monetary sanity has been restored can we expect to live in a stable and progressing global economy.

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Posted May 30, 2011