“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.
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.
