This post is written especially in the interests of the poor - and there is "relative poverty" everywhere, though in India there is "mass poverty," and that too, crushing and grinding poverty, which covers not just peasants in remote villages, but also most of those who engage in the "urban division of labour" as well, including in our metropolitan cities.
Inflationism hurts the poor most - by eroding the value of their savings, their precious Capital, which they would like to invest in their own livelihoods.
In India, inflationism is going on - at a blistering pace.
Now, with the rupee nose-diving, imports will become more expensive.
The chief economic advisor to The State, Kaushik Basu, recently parroted the stupid line that this would "promote exports." Do read this detailed Mises Institute Daily Article demolishing this absurd point of view.
There is another interesting article from the same source pointing out that, with sovereign defaults looming in Europe, and European banks going bust, inflation is going to hit the USSA, too.
However, what is most important to note is that if Bernanke and the European Central Bank decide to "bail out" governments and banks with more fiat paper issues, and credits, inflation will skyrocket. Further, if these institutions take this line of action, and our own RBI follows suit, all hell will break loose - for the poor, everywhere.
Let us now turn to the “Natural Order.” It exists all around us – even more so in India, where billions of rupees worth of goods are “informally traded” in all our bustling bazaars by the unlettered, in complete peace, because of the “mental category” of Property we humans are all blessed with, which is what enables trade, because it makes us see “possession as property.” All these goods that are traded in our bustling bazaars are transported in by the sellers – then displayed as their property – after which occurs exchange, and these goods are then transported out, as someone else’s property, INFORMALLY.
“Man is a rule-following animal,” said Hayek – but he did not enter into these mental categories. Hayek has written zilch on epistemology. For that “Ultimate Foundation of Economic Science” you must read Mises.
In theoretical terms, what can be said is that barter trades are difficult because they require the “double coincidence of wants”: the man who wants to exchange ganja for booze must find someone with booze who wants ganja, and so on. If the guy selling ganja finds someone who wants his ganja but offers only meat in exchange, no deal is possible.
Thus, the “trading mind” looks for something else that might be acceptable – like, say cowrie shells, or whatever. He will then exchange the ganja, take the cowries, and go off to search for someone selling booze who might accept cowries. If cowries are acceptable to the booze-seller – and the process goes on – soon cowries will become “money”: which is a “medium of exchange.”
This is how the “direct exchange” of barter inevitably become “indirect exchange” mediated by money – spontaneously. Trading minds soon discover which commodities are the “most easily sellable” – and these are what they then exchange their goods for. They then use these easily sellable commodities for making their own purchases. This is how money has originated; money is NOT the invention of any superior mind, and certainly not of any “authority.”
While this is “Theory,” it is fully supported by History, which tells of so many media of exchange mankind has used for millennia, from scarabs, to animal skins (the word “buck”), to salt (the word “salary”) and then iron bars, and finally, gold and silver. Paper money is recent – and it began as a “money substitute,” which is testified by the “promise to pay” still printed on it.
In other words, money has always emerged “spontaneously” – without any “common will” exerting itself for the purpose, like a king, or a law, or a State.
The lesson: Without any “power” being exerted, the problem of money – that is, “sound money” – can easily be solved, because people will be free to choose money. We can “predict” that gold, silver and copper coins will be acceptable – but some “token moneys” for even smaller change can easily arise as well.
This sound money will be “hard money”: PROPERTY.
Now, apart from Property, mankind follows another kind of Law quite naturally, and that is “Contract.”
Banking is nothing but Contract – time deposits, demand deposits, and loans. Even the “promise to pay” on the paper money of today is a contract – that used to be honoured in History.
Of course, an older Law of human society is Tort – which covers injuries, or “crimes against the individual.” Restitution is the remedy – and the injured party receives financial compensation from the tortfeasor.
With these three pillars of Natural Law we are all protected.
This is a PRIVATE LAW SOCIETY.
But I was talking about Money & Banking.
[For a detailed discussion of these vitally important issues, the reader may check out Chapter 10: "Sound Money, the Rule of Law, and Free Banking" in my online publication dated 2007 - Natural Order: Essays Exploring Civil Government & The Rule of Law.]
With sound money and legitimate banking, human society will “accumulate capital.” The value of savings will rise – not fall. People will save more – and invest more, even the poor. Production will increase – boosting demand for everything, which is Say’s Law of Markets, explained below.
Add unilateral free trade – which means no State intervention in goods crossing borders – demand will rise worldwide.
There will follow the “international division of labour” – leading to what Adam Smith called “universal opulence.”
None will be absolutely poor – anywhere; though “economic equality” will never come about, because it simply cannot. It is just another of those socialist and communist “egalitarian” delusions – one that they “sell” to the poor, whom they make poorer, while the “leaders” remain very much a “labour elite”: like our VIPs and VVIPs.
It is either this or more fiat paper money inflationism. More fiat paper inflationism will destroy human civilization worldwide. The progress of civilization requires capital accumulation – while fiat paper inflationism proceeds in the opposite direction: de-civilisation. Increases in the supply of fiat paper money do not “stimulate demand” - as Keynes and his adepts argue. On the contrary, what actually occurs is that the value of these paper notes decline. Savings are eroded. Investments decline. Demand declines.
The true source of demand is PRODUCTION – which requires investment, which comes from private saving. Anything produced, when finally sold, enables the producer to purchase all his needs from the market – and this is what demand is all about. This is a very old Law – one that Keynes and his adepts simply refuse to acknowledge the existence of: Jean-Baptiste Say’s Law of Markets, dating back to the 1820s. I have many posts explaining various implications of this vital law under the “Say’s Law” label on the right-hand bar – and I urge my reader to study each of them with utmost care.
So, RESIST ALL MOVES TOWARDS MORE FIAT PAPER MONEY INFLATIONISM.
Let there be DEFAULTS – for bondholders are but allies of The State, who take no “risks” in the market, and who get “interest” from the taxpayers, for this is nothing but “permanent irredeemable debt.”
Let there be BANKRUPTCIES and all that.
But do not allow any NEW LEGISLATION on the matter – for legislation lies at the root of the money and banking problem. Legal tender is another form of “legal plunder.” Every central bank in the world has been established by legislation.
Thus, it is not money that is "the root of all evil." Money is a miracle human minds have created to facilitate trades - their mode of survival and wealth creation.
The root of all evil is the "love of money" - and this evil becomes grotesque when combined with the love for power, which is precisely what central banking and fiat money are all about.
With money and banking coming from the natural order and its natural laws, of which Property is a “mental category” within every trading human mind, the rest will surely follow.
As a study in contrast, I recommend this column by the Communist Party MP Sitaram Yechury asking The State to “invest in people.”
My question: Would you rather see your savings grow, so that you can invest in yourself – or do you want what this communist is calling for?