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Morality Play

By would be a difficult argument indeed to say we weren't somewhere between abundance and dependency.


Professor Succo and I often draw sharp moral lines when we write about the Federal Reserve, fiat currencies, pernicious inflation, and government bureaucracies. And I suppose that might come as some surprise to some Minyans. After all; investments are investments and morals are morals.

But there is a linkage between the two that is more important, and insidious than it appears at first glance. Karen De Coster, a contributor to the website drew this distinction with clarity in late June in an article entitled "Will the Federal Reserve Create the New Socialist Man?" In that piece, she makes the case as strongly as any John and I may have made in the pages of Minyanville:

"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."

A constant loss of value in the monetary unit forces all manner of dire consequences on economic actors: it favors consumption over saving, speculation over investment, capital over labor, and the young over the old; it prevents accurate economic calculation about the future and thus clouds investment horizons; it hollows out a country's middle class making for more class conflict between haves and have nots.

But as De Coster has pointed out above, there are grave time preference consequences as well that impact not only long term investment projects (as noted above) but also the very manner in which parents raise their children and how children care for their ageing parents, as well as the lessons of frugality and hard work that once were the bedrock of this nation.

A well read Minyan sent me the quote below early this week and I think, in combination with De Coster's lament above about fiat currency, time preferences, and moral turpitude, places the evolutionary context of our agreement to free the USD from all commodity backing in its rightful place:

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage." - Author Unknown

And while it is debatable where the US is within this great chain of progress, it would be a difficult argument indeed to say we weren't somewhere between abundance and dependency.

So the next time someone insists that money, banking, and fiat currencies aren't moral issues they are investment issues, you can tell them differently.

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