The Cultural Perils of Fake Money

Atlanta, GA

April 12, 2022

Last week we fingered funny money as the cause of most modern maladies. We observed how it depresses purchasing power, distorts the economy, diverts resources, queers investments, and encourages conflict. 

As noted in that essay, sound money tends to reduce time preference. If people are confident their money will retain value, they are less inclined to rid themselves of it today, and more willing to invest it for tomorrow.

This is how civilization develops, grows, and prospers. It is how and why it thrived under the nineteenth century gold standard…roughly between the Congress of Vienna and the Guns of August…when industry bloomed, innovation blossomed, quality-of-life rose, and prices fell.

There is a natural rate of interest on the market, reflecting an inherent aggregation of true time preference. When capital is abundant, time horizons (and interest rates) fall. When the capital stock is low, time preference rises, bringing interest rates with it. This dissuades consumption and entices investment, erecting the essential scaffolding by which civilization’s structure stays sturdy.

Interest rates are the joists and beams of the entire economic edifice. When central banks intervene to lower them, society’s ceiling drops. People are encouraged to consume when their natural tendency is to replenish capital. 

Rather than replace the wiring and restore the walls, society is encouraged to strip the copper and steal the stones. Over time, as the metal rusts and the mortar cracks, centuries of construction begin to collapse. Eventually, the roof caves in.

The plaster’s already begun to peel, even as propagandistic painters try to whitewash the rot. For several weeks, riots have raged from Sri Lanka to Lima. Price increases, fuel shortages, and food rationing brought fed-up people with empty stomachs into smoke-filled streets. 

The protesters couldn’t care less about tomorrow; they need to eat today. The future, like their money, is an abstraction. The present is real. Time preference in these places is, to say the least, extremely high. That’s what fake money does.

In Shanghai, the Chinese are keeping citizens off the streets by imprisoning them in their homes. Under the pretense of (what else?) eradicating Covid, they hide inflation by prohibiting transit, compelling universal incarceration, denying medication, and withholding food.

Be it in China, Australia, Canada, or here, such draconian directives by government officials aren’t so much about conquering Covid. They’re designed to control our activities, and to conceal theirs. 

Massive money-printing, Covid interventions, and state-sanctioned mal-investment has created severe crises around the world. Rather than risk riots over rising prices and inevitable shortages, it’s more convenient to deflect attention, intern the populace, and blame a bug. 

By instilling overblown fear of a genuine virus, the State can convince people to quell themselves. For the “greater good”, ignorant citizens are convinced to relinquish their liberty, obey their betters, and not notice how government officials have ripped them off.

Americans aren’t immune. The lunacy of last couple years proves that they are quite susceptible to ulterior motives and despotic directives. Many cheered government officials when they locked them down, thinking they were “doing their part” to “keep us safe”. But who were they really protecting?

The original 2020 lockdowns followed a sudden spike in repo rates several months earlier. One night in September 2019, the overnight rate doubled. The next day it doubled again. The financial plumbing had begun to clog. 

To clear the conduits, the funny money increased its flow. But as volume rose and velocity increased, the main pipes began to burst. The Fed re-accelerated it’s asset purchases, but denied that they’d resumed quantitative easing. A couple months later, “the virus” arrived. Whether cynically calculated or merely convenient, the lockdowns became a perfect berm to fight the flood.

It’s not just financial markets that take on water under a fake money wave. The culture capsizes too. When the money goes, as Bill Bonner said, everything goes. 

Without the heavy anchor of hard money, society drifts…until it drops. It rides unpredictable swells into heavy storms, till it’s eventually dashed on the rocks of depravity, distress, and despair.

Sound money serves as a reliable benchmark, a way to preserve, measure, and appreciate value across time. Bad money, like a drop of sewage in a magnum of Margaux, corrodes civilization in imperceptible, yet undeniable, ways.

In a debt-addled fake money society, time preferences shrink, and short-term thinking prevails. By forcing rates below natural levels…like pressing a beach ball under water…central banks finagle the currency to fight the tide. But they can do this only so long before the ball shoots up, or everyone drowns. 

As its returns diminish and value drops, funny money becomes a melting ice cube, and a hot potato. People are loathe to hold a wasting asset. So rather than defer spending to save for the future, they consume today and live for the moment.

Fewer people care about the long run. By the time that arrives, as Keynes (a principle proponent of short-term consumption in a fake money system) put it, we’ll all be dead.

So everyone begins to seize the day, without concern for those to come. Debt rises, crime increases, divorce goes up, marriage declines, and tattoos proliferate. 

Under sound money, gratification is deferred, because there is something to lose. We increase savings, suppress primal instincts, and prepare for the future. It is reduced time preference that reminds us that a hangover hounds the bender, that divorce follows the fling, and that bad bets beget bankruptcy. 

When time preference rises, the present takes precedence. We’re more inclined to down the shot, have the affair, and roll the dice. We’ll sacrifice the long-term health of a successful society in a short-sighted attempt to squash a virus. None of this is possible without corrupting the currency.

Phony money is a funhouse mirror. It distorts what it reflects, and leaves us doubting what we see. But some of its images are crystal clear, and extremely perverse.  

Take a look around any major city in the western world. We all recognize the architectural atrocities that rose in the wake of the fake money system. Few of us admire the Brutalist affronts and insipid banalities that litter the landscape. 

Banks are an obvious example. Gold standard banks were big, sturdy, and stately. Today’s bank buildings could be a renovated Wendy’s.

Sound money architecture creates structures worthy of containing real money. Funny money architecture produces what James Howard Kunstler called “unedifying pieces of sh*t”, built to house counterfeit currency conjured from thin air.

As Saifedean Ammous noted in The Fiat Standard, contemporary construction is concerned with limiting present cost, not with preserving future value. In hard-money eras like the Florentine Renaissance or Victorian England, the present was sacrificed to ennoble the future. 

Can anyone imagine Michelangelo taking time today to paint the Sistine Chapel? Do we ever wonder why most art worth emulating was produced before the world ditched gold? Near-term thinking dominates a fake money world. 

But it’s not just aesthetics that depreciate under a funny money reign. The essentials decline too. We’re enduring such an episode now, when even the most delusional climate fanatic is learning the hard way that dependable food requires reliable energy. 

We saw this in the seventies, when inflation last approached today’s rates. After Nixon severed the last link from the dollar to gold, oil futures spiked and food prices soared. To dampen the effect and camouflage the cause, the government resorted to shenanigans that have been common ever since. 

Much as today’s politicians accuse Vladimir Putin for causing US inflation that preceded his invasion, the “energy crisis” of the early seventies continues to be blamed on the Arab oil embargo. But oil shortages started the prior year, and its price kept rising many years after the embargo was lifted. 

When real money was cast aside, real food went too. Since meat and eggs rose most in price, a new “pyramid” was built to push them out. The new triangle extolled the “virtues“ of less expensive (and more politically connected) grains, seeds, and oils. 

In typical fake money fashion, the future was sacrificed to preserve the present. Meat and eggs, which increased most in price, were suddenly declared health hazards. As Saifedean Ammous recalled, Lyndon Johnson went so far as to have his surgeon general proclaim eggs “unhealthy” because their price had risen too fast. 

By convincing people to remove these items from their diet, healthy sources of vital protein were extracted from American shopping carts, and excised from inflation calculations. 

Meanwhile, for half a century, politically favored grains, seeds, sugars, and oils have done extensive damage to American health, while strengthening that of agricultural, pharmaceutical, and medical interests.

In the short-term, a misdiagnosed problem was papered over and covered up. But the long-term health effects have been catastrophic. Obesity, heart problems, diabetes, and depression have soared since the food pyramid became an inflation fix.

A culture in which parents bequeath their children more than they inherited is a future-oriented, civilized society. In America, that has historically been the case. It no longer is. 

For the first time in history, life expectancy is declining. Religious observance, an obvious deference to a redemptive future, is falling. As in ancient Rome, when the money wastes away, the rest goes with it. 

Yet the Romans were lucky. They had Christianity to save them. We’ve ditched that too. It may have seemed like a good idea at the time, and fun while it lasted. But now the gold is gone, and God is too. We evicted both, and did this to ourselves.

JD