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Thursday, June 04, 2009
The current issue of the Journal of Economic Perspectives has an interesting article titled "Who Said `Debauch the Currency': Keynes or Lenin" (sub required) in which it is argued that Lenin claimed that the quickest and most sure means of destroying capitalism is to debase the currency. The following quote is provided from the April 23, 1919 NYT (and Daily Chronicle of London):
Hundreds of thousands of rouble notes are being issued daily by our treasury. This is done, not in order to fill the coffers of the State with practically worthless paper, but with the deliberate intention of destroying the value of money as a means of payment. There is no justification for the existence of money in the Bolshevik state, where the necessities of life shall be paid for by work alone.There's something to chew on.
Capitalism is naturally a very optimistic means of economic organization. Those who choose to delay gratification today invest their savings into endeavors they hope will provide a real return in the future. However, when an individual delays gratification today for gratification tomorrow that person is implicitly trusting the government and other, perhaps more informal, institutions to continue playing the game the way the rules are written at the time. When governments start to rewrite the rules, the uncertainty that is introduced essentially freezes the capitalist system as individuals have less faith that what is happening today will also be happening tomorrow.
Lenin is correct that astute investors can typically find ways around government regulation and expropriation. However, inflation is a systemic problem and that is why it cannot be avoided by even the most wealthy. In the process of destroying the currency, however, the "little guy" is squashed just as easily as the "big guy." I am fairly well convinced that most if not all of the hyperinflations we have witnessed over the past century are completely politically motivated. And yes, if a hyperinflation occurs in this country it will have been politically motivated as well.
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