The Cultural Destruction of Inflation

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Commentary

What is inflation doing to the culture? For a clue, look at trends in household economics.

Start with credit card debt, which is now rising 14 percent per year in the United States, after having fallen dramatically during the 2020 lockdowns. People wisely used stimulus payments to pay off some of that debt, although that’s over now. As credit card debt surges, the savings rate is trending the opposite way: down to 3.1 percent. In the 1960s, before the age of inflation really kicked in, 12 to 15 percent was more common.

Less saving, more credit card debt, and declining real income all amount to burning a candle at both ends. And within this context, we have credit card interest rising very fast, reaching 17 percent or more. This applies to the whole balance on the cards, of course, so those people who racked up the debt during good times are now being pillaged, with all of their discretionary income going to service debt on things consumed long ago.

This isn’t just a very unsatisfying way to live, it’s also deeply dangerous.

Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker

This isn’t just about the recessionary environment. It’s also about monetary devaluation. The paper you hold is losing value rapidly, so there is an element of rationality here: get rid of it sooner and consume more goods and services.

In that way, inflation rewards short-term thinking and punishes saving and planning for the future.

Every major inflationary experience of the past has revealed this general trend. It affects not only economics, but also the culture at large, too. In short, it makes us less civilized. That’s because a mark of a mature civilization is a culture with long-time horizons. People think about not just this calendar year and not even their own lifetimes but generations hence. Their economic choices also reflect that, through saving, investing, and long-range planning.

A complex and mature economy builds economic structures within a huge range of time horizons. Land can be cleared for a factory that won’t have output for five or even 10 years, or profits for 10 or 15. Yet, there are lenders willing to back such an operation based on long-range calculations. Vineyards can open only with the expectation of a drinkable product in five or 10 years.

Such complex production structures are the mark of a prosperous society because they encourage a broadening of the division of labor and enable ever more cooperation between people toward the great goal of making wealth. A crucial element here, however, is the soundness of the money, which should be stable or grow in value over time. That institutional condition gradually rewards long-term planning.

An inflationary currency does the opposite. It feeds spending frenzies, irresponsibility, and a mentality of living for the day—just getting by. This gradually erodes bourgeois values and takes us back in time.

Remember that all societies are born desperately poor, fated to live off foraging and just getting by. Prosperity is built through the construction of capital, which is the institution that embodies forward thinking. Without that, all the toil on the part of the whole population can’t lift people out of poverty. In fact, it’s a myth that poor societies are due to lazy people. More typically, the problem is in the lack of capital formation, which happens when the money is unsound and the government becomes confiscatory of any wealth accumulation.

To make capital requires the deferral of consumption: You have to give up some today in order to make tools that enable more consumption tomorrow. This means discipline and a future orientation. And it means, above all, savings that can be invested. Only through that path can societies grow rich.

A key component of this concerns the stability of the medium of exchange. And not just stability: A currency that rises in value over time incentivizes saving and thus investing for the long term.

The late 19th century provided a good example of that. Under the gold standard, money grew more valuable over time, thus rewarding long-term thinking and instilling that outlook in the culture at large. That, of course, was the period when America’s great cities rose up, living standards soared, and life expectancy grew ever longer. Wealth and health went together. And generally following World War II, the dollar kept its value until the end of the gold standard.

Inflation has the opposite effect. It punishes saving by forcing a penalty on future-oriented economic behavior. That means also discouraging investment in long-term projects, which is the whole key to building a complex division of labor, and causing wealth to emerge from the muck of the state of nature.

Every bit of inflation pares that future orientation. Hyperinflation utterly wrecks it. Living for the day becomes the pattern. Taking what you can get now is the method and the theme. Grasping and spending. You might as well because the money is only going down in value. Better to live hard and short and forget the future. Go into debt if possible. Let the depreciation itself pay the price.

Once this attitude becomes instilled in a prosperous society, what we call civilization gradually devolves. If inflation persists, that kind of short-term thinking can wreck everything.

This is why inflation isn’t just about rising prices. It’s about declining prosperity and a culture that gradually falls apart.

I’ve been reading often these days about the shortening of attention spans due to TikTok and instant gratification from online portals with endless amounts of blips, blings, and thrills, all packed into 10-second experiences that roll from one to the next. No one raised in this world will find much satisfaction in reading the Harvard Classics, much less learning something about household finance and investment.

TikTok is the perfect symbol of the age of inflation: instant gratification, cotton-candy experiences, fluff without substance, now instead of later. Once you understand the relationship between money and its quality and cultural health, the fame of this app is no longer mysterious.

Another factor in reducing time horizons is legal instability. That was my first concern when the lockdowns began 31 months ago. Why would anyone start a business if governments can just shut it down on a whim? Why plan for the future when that future can be wrecked by the stroke of a pen?

Many people had assumed that this new path would be short-lived. Surely, the politicians would wise up and stop the madness. Surely! Tragically, it got worse and worse. The spending and printing began and ramped up over time. It was a perfect storm of sheer madness, and now we’re paying the highest possible price.

American prosperity for decades has relied on relatively low inflation, fairly stable rules of the game, and widening trade with the world. All three are at an end. Yes, it’s heartbreaking to watch it all unfold. Tragically, this is all becoming embedded in the culture too, especially for the young who were traumatized so severely by school closures and masking.

Now, they are being raised in a world with diminished hopes for the future.

Societies that lose confidence in the future due to inflation and, therefore, the ability to even think with a broad time horizon, are more prepared to accept despotism. I offer three dates as demonstration and let you fill in the historical details: 1793, 1918, and 1934.

We all need hope right now but it’s very difficult to find. The likely Republican takeover of Congress perhaps provides some but the problems are much deeper and broader. So, too, with the Federal Reserve’s war on inflation: At best, it’s a temporary palliative.

We find ourselves on a course that isn’t likely to be fixed for a very long time. That fix must include serious and structural change in the money itself. Without sound money, a functioning legal system that enforces predictable rules, and a government that leaves society alone, the prospects are grim. A candle burning at both ends isn’t long for this world.