Which came first: the chicken or the egg? Inflation or the managerial class?
Inflationism is as much a tool as it is an ideology and a phenomenon. Inflation, of course, promotes consumption at the moment as prices change faster than incomes. It benefits borrowers at the expense of lenders. It benefits first and earlier receivers—those closest to the money spigot—at the expense of later receivers. It also provides the perfect tool for the managerial class that James Burnham and Sam Francis describe for the further expansion and centralization of power.
Their theory rests upon the idea that business and the state have become fused through a class of bureaucrats and managers working hand-in-hand. The Soviet Union and Nazi Germany were obvious examples, but Burnham also saw the New Deal as another. A flaw can be found in Burnham’s identification of the New Deal as part of the managerial revolution he observed, though. It began in the United States much earlier, in the Progressive Era, as big business joined progressive technocratic expertise to cartelize industries at the expense of the consumer-taxpayer. The New Deal was foreshadowed in the war socialism of Woodrow Wilson, which was only halted by the end of the war. A crucial aspect of this business cartelization was central banking.
If one considers Rothbard’s account of the origins of the Federal Reserve to be sound history—a revisionist history to say the least—financial firms came together with ideologue politicians and economists to support the fragile fractional reserve banking system. J.P. Morgan would no longer have to act as the lender of last resort to an unsustainable system. But it further reinforced the federal government in many of the actions that it would soon undertake.
Mises stressed the power of the purse, of the people to place constraints on government actions contingent on their cooperation with taxation or their observance of the use of taxpayer money. But governments tear away this power from the people with borrowing and inflationism. By borrowing, the cost of any policy they undertake becomes hidden until future taxes are imposed to pay off the issued debt (if paid off at all). When inflationism is undertaken to pay for goods, the cost is hidden as prices slowly rise unevenly following the injection of the new money into the broader economy.
Inflation takes time to cause prices to rise through different sectors of the economy. This obscuring of the costs makes it easy to pass off the financial and social costs of a conflict as less costly for a time. This is why Dr. Ron Paul has remarked that “it is no coincidence that the century of total war coincided with the century of central banking.” The costs of war are obscured by inflationism and borrowing, both enabled by central banking.
War is a centralizing force. The war socialism that is engaged upon, the nationalization of industries, rationing, and price controls, foists the entirety of the economy into the hands of bureaucrats and their managerial allies in corporations. Small firms cannot operate in such an economy. Their inputs are restricted as they get diverted to the war machine. They cannot afford managers to cooperate with bureaucrats. Slowly they are absorbed. All under the name of patriotism, of fighting a supposedly “just war,” that is enabled by central banking.
It is no coincidence that the very same figures that pushed for the creation of the Federal Reserve—that created the managerial state—were among the strongest advocates for the war socialism of Woodrow Wilson. It is best described by Rothbard in The Progressive Era in his chapter “War Collectivism in World War I.”
There is another aspect in which inflation acts as a centralizing force. Inflation distorts price signals in the economy to the benefit of the early receivers. It sucks away real goods from other economic actors under the illusion of a normally beneficial exchange and into the hands of those closest to the central bank and government—namely, the managerial class.
Property plays a crucial role in how man behaves. Man acts to achieve a more satisfactory state of affairs by employing means. Private property is the only efficient way by which to allocate economic goods—those goods that fall victim to scarcity and are identified as means towards some end. To allocate this property, human action gifts us the market price system.
Prices are not arbitrary numbers or physical relations between goods, but rather ratios that tell us how man has chosen to exchange goods for one another. It is only possible given money. When money is interfered with—whether it is the medieval king debasing his currency, the lay counterfeiter hidden in a basement, or the central bank pumping reserves into the banking system—the price system is distorted.
Money is not neutral; it enters at certain points and will raise prices at different rates according to the preferences of the spenders. Inflation alienates people from property by their proximity to the money printer. When every aspect about how you behave in an ordinary society is defined by property ownership—the acquiring of your means—to be deprived of it through a rigged market leads to discontent.
With rapidly changing prices, especially when it occurs unevenly, one cannot ascertain the future value of their savings and their property, as Dr. Salerno elucidates in “Hyperinflation and the Destruction of Human Personality.” This prevents people from being forward thinking, they begin to consume. They must consume now because there is no assurance that any cash holdings they have now will hold their value in the future. Sam Francis identifies mass consumerism as a vital aspect of the managerial regime.
It is necessary because the creation of real goods must be offset when corporations must employ a large swath of managers to comply with bureaucrats. Goods become less durable, as people have shortened time horizons for consumption. When man behaves, he engages in capitalization whereas he determines whether the value of all possible uses of a good will be greater than the cost of the good. This is called capitalization.
If the value a man would get from three cheaper shovels is equal to or marginally greater than from one, more expensive shovel, he will purchase the three cheaper goods. He can reap more value from this. More durable assets will tend to rise in price faster and become more expensive faster than cheaper mass-produced goods. Thus, inflation short circuits this process and creates incentives for people to purchase mass-produced goods.
As smaller firms are absorbed and mass-produced goods increase because of demand in the market, everyone who wants a steady income must join a large corporation. They become atoms in an economically inefficient machine. What is not made up for with income at these corporate jobs is made up for by an inefficient welfare state that is funded through further debt.
Man no longer relies upon his community or a truly economical job. He becomes an atomistic consumer. This is not even to mention attacks upon the family caused by the welfare state and educational system. All of this is financed by inflation and downstream of its effects. All of this empowers the managerial-bureaucratic state. The corrupt corporations that cozy up to the federal government are rewarded and the only ones which survive. Bureaucrats alienate citizens from local communities, from their property, from their businesses. Everything that people are attached to and reliant upon in their local communities is eliminated. Man becomes homo politicus—political man.
Politics becomes a totalizing force under bureaucracy. Inflation is the managerial class’s greatest tool. Through it they can finance every policy they wish. They can reward their friends and punish their enemies. They create a consumerist man—the economic man that is used as a strawman against free marketeers. The “free market” is chided for its “rampant consumerism.” All of this is possible only with the help of central banking and its chronic inflationism. It is no coincidence that the century of bureaucracy coincided with the century of central banking.
