[Originally published in 1957. Republished in Economic Freedom and Interventionism (1980).]
In the phrase “protection of savers,” the word “protection” has a different meaning from that usually attributed to it in present-day political circles. Generally speaking, protection of the “little man” or of agriculture means protecting firms from competition on the market, at the expense of consumers. Privileges to advance the special interests of particular groups at the expense of the entire population are recommended. Policies are proposed which must reduce total production.
Protection of savers and of savings involves something very different from this — namely, preservation of the very foundations of justice on which the capitalistic order of society is based and, consequently, of capitalism itself. The unprecedented increase in the standard of living of the masses in the capitalistic West is due to the fact that the formation of capital increased much more than the population. Real wages went up because the marginal productivity of capital goods went down in comparison with that of labor or, more popularly expressed, because the worker in a modern, well-equipped plant can produce many times more than can a worker with primitive tools.
Unrecognized Dangers
It was possible for savings and capital accumulation to increase on an ever larger scale in the West because the right of private property, in contrast to the arbitrary might of military and political rulers, had been firmly established as the result of a gradual development based on Roman law. Conditions in the constitutional state permitted sizeable accumulations of savings and capital investment. What separates West from East is precisely the idea which social reformers ridicule as the “sanctity” of property, and which has not penetrated the Orient at all.1 Capitalistic saving and investment cannot develop in lands where it is generally believed that the wealth of the businessman causes the poverty of the many, and where the successful trader is sacrificed to the predatory desires of the rulers and their representatives. The short interlude of “colonialism” and “imperialism” now belongs to history. One day, also, the United States will discontinue its gifts of billions to the enemies of capitalism. Many hundreds of millions in Asia and Africa will suffer increasing want because the policies of their governments obstruct domestic saving and capital formation and keep foreign capital out.
In view of the situation in the United States, there is certainly no cause to wonder that the Orientals lack understanding of the problem of capital creation and capital preservation. The fact that every year the quantity of newly accumulated capital in the United States far exceeds the amount consumed in production and otherwise used up is due neither to the policies of the government nor to the doctrines propagated by the universities, the two political parties, and the press. It is a result of the fact that American capitalism still operates satisfactorily in spite of all the obstacles placed in its way under the misleading label of “welfare economics.”
The market economy under the directorship of the entrepreneur has never better demonstrated its unparalleled productivity than in its adaptation to this system so full of traps and snares. Still the official political economists, self-styled “progressives,” misinterpret this great success of entrepreneurial initiative. Prejudiced by their socialistic ideas, they seek to discover in every improvement in the standard of living of the masses a new argument for the continuation of the New and Fair Deal reforms and the related policies of inflation and credit expansion through low interest rates.
For some time it has seemed that public opinion was beginning to recognize the dangers of continued inflation, and that this would lead to an end of the policy of credit expansion. Yet the Federal Reserve Banks’ interest rate was allowed to increase only slightly before a strong countermovement set in. Everyone protests that he is against inflation. Yet what is usually meant by “inflation” is not an increase in the supply of money and credit but an increase of prices. People do not want to hear that an increase in prices is the inevitable consequence of an increase in the money supply. To bolster purchasing power, they demand cheap credit and price ceilings.
After a period of decreased saving, the amount of new savings is once again rising in the United States. Also, the increase in the amount of life insurance taken out each year is considerable. Nevertheless it would be premature to conclude from this that the masses do not realize that the progressive decline in the dollar’s purchasing power is a threat to their savings and their provision for the future. However, there is no other possible means of saving open to the employee or worker, who is not familiar with business or the stock market. (Even the entirely insufficient makeshift of hoarding gold coins is in the United States illegal and practically impossible.2 ) The people cling to the hope that no further decline in the dollar’s purchasing power will take place.
“Do You Know That You Are a Creditor?”
The coming years will determine whether the United States, whose spokesmen never tire of noting that the American standard of living is much higher and better than that of any other time or place, will succeed in managing its finances without inflation or credit expansion. The number of persons is not large who fully recognize the dangers of government’s mislabelled “expansionist,” monetary policy, and only a few politicians are ready to listen to their words of warning. The “practical” person has no interest in “long-run” policies. For him, nothing matters but the outcome of the next congressional election, which is never more than two years off.
When National Socialism (Nazism) attained success in Germany with its slogan “Wipe out interest slavery!” one daily paper — I believe it was the Frankfurter Zeitung — carried an article under the headline, “Do you know that you are a creditor?” The American “common man,” as a saver and especially as an owner of life-insurance policies, is a creditor to a much greater degree than was the average German of the Weimar Republic. Still he is not aware of it. He trusts the inflationists who tell him that “cheap money” hurts only the “international bankers.” Just as he supports politicians, who spend billions in tax dollars to raise food prices, he is supporting a monetary policy that threatens his economic future.
There is only one way to improve the situation. That is to try to explain these matters to the voter
Translated by Bettina Bien Greaves from the German, as it appeared in Zeitschrift für das gesamte Kreditwesen (Volume X, Number 1), January 1, 1957, pp. 24–25, this article is republished in Economic Freedom and Interventionism (1980).
- 1A rigid system of privilege and castes prevailed for centuries in China and Japan; wealth was a question of rank, and the common man had little opportunity to improve his situation. Savings in Japan and the other nations of the Pacific Rim are a relatively recent development.
- 2 For more than 40 years, from June 5, 1933, until December 31, 1974, U.S. citizens were denied the right to own monetary gold.
