Let’s have a look at the final letter in Argentarius’ “On Money” collection of letters today.
This letter is what I call the “anti-MMT smackdown”. Lansburgh here anticipates arguments that are currently -100 years later- being made by MMT economists like Maurice Höfgen from Germany.
If one looks at the matter in the light of day, the whole question of currency is basically only a harmless example of multiplication. One simply has to multiply all one’s expenditures by 10 or 100 or 1000, according to the devaluation of money or the increase in prices. Objectively, this means nothing, because every expenditure of one is an income of the other, and therefore the income also increases by 10, 100 or 1000 times. One only has to get used to adding a zero to all numbers in traffic life.Alfred Lansburgh: The Essence of Money – Part i. On money
According to Argentarius, monetary downfall is as bad or worse for a country as losing a world war and we will soon see why.
This harmlessness, my son, cannot be countered strongly enough, for the ignorance that expresses itself in it borders on the criminal. It is bad enough when a nation slides down the slippery slope of inflation in clueless recklessness. But if it then blithely ignores the consequences of this slide or tries to see the best side of them instead of taking hold of the reins of the state and putting the brakes on in time, then the people are hastening towards their doom. For, to put it in meagre words, the decline of its currency is probably the greatest misfortune that can befall a nation. Even a lost war does not bring it such serious immediate damage as the ruin of its monetary system.Alfred Lansburgh: The Essence of Money – Part i. On money
Lansburgh realizes that economists that make this claim, fail to account for the Cantillion effect, which means that the people closest to the money printer benefit because they get the newly printed money first, when prices are still low. This of course means that people who are the farthest away from the money fountain lose out.
Inflation is a silent, hidden means of redistributing money from the poor to the wealthy.
Above all, they overlook one significant circumstance: the devaluation of money, i.e. the multiplication of expenditure, affects the whole. The counterpart to this, the increase in income, however, benefits only a fraction of the population, and this fraction, of course, to such an extent that the relationship between income and expenditure improves extraordinarily. And it is mainly capital, in so far as it possesses material assets, which profits in this way. On the other side, however, which only learns about the moment of the increase in expenditure from the devaluation of money, are, apart from the pensioners, who are particularly severely damaged, mainly the mentally and physically working classes, the civil servants and the state pensioners.Alfred Lansburgh: The Essence of Money – Part i. On money
Everyone who possesses claims expressed in money, such as interest, pension, salary, wage, pension and the like, is harmed to the extent of the deterioration of money. Anyone who owns certain real assets, such as real estate, livestock, furniture, stocks, etc., is normally neither harmed nor benefited, because the real assets rise in price by approximately the same amount as the money in which the price is expressed loses purchasing power. (Forcible harm, such as that done to homeowners by the state’s housing policy, is not considered here.) Finally, everyone who owns advertising values, i.e. factories and machines, and produces real values with them, as well as everyone who sells these products, profits from inflation; and this because the selling prices of his products, i.e. his income, adapt themselves faster to the falling value of money, i.e. rise faster than his expenses for wages, rent, interest, taxes, etc., and because this favourable relation appears not once, but many times, with each act of sale anew. In short, the first class is expropriated by inflation in favour of the third class.Alfred Lansburgh: The Essence of Money – Part i. On money
But not only does inflation redistribute, it damages and hurts economy and the society in various other ways as well.
Now one could take the view that compassion is not a matter of economics and that one should not view the process through the lens of sentimentality. One rises high, the other sinks low, that’s just human fate. What matters is not the individual, but the whole. But this is precisely where the catch is: although these processes seem to affect only certain classes of people, it is the totality that suffers the most serious damage. First of all, from a moral point of view: In the whole nation, even if it is straightforwardness and honesty itself, every sense of right and fairness is gradually disappearing. Namely, because all classes, even the inflationary profiteers, believe themselves cheated by the state. And indeed, we know that money is a right, namely a right to obtain goods of a very definite value. And what is law must, as is well known, remain law in a state of order. No right, however, must stand more securely and last longer than the right of possession, which is embodied in money, for in trusting in its existence, states and peoples conclude sacred treaties which are valid for 100 years and more. This right, this right of all rights, has been grossly violated by the state, which has decimated the value of money through inflation. Every worker, every civil servant, every pensioner feels cheated out of his or her rights by the state, which is supposed to protect them. But also the beneficiaries of the deterioration of money, who, so to speak, feed off the fat of the general public, feel that their rights are threatened by the state, because the state demands from them the taxes that it needs in order to alleviate, at least to some extent, the misery for which they themselves are responsible. Since only a few of the beneficiaries know the real connection between their income and the misfortune of others, and most of them attribute it to their own efficiency, which is only the effect of inflation, they regard it as an act of violence and a disenfranchisement when the state wants to tax away part of their profits. Hence the general ‘tax evasion’ […]Alfred Lansburgh: The Essence of Money – Part i. On money
With this letter, the series about money is complete, and we have learned the basics, of how money works. In Part II. “Valuta”, we will learn how money affects international trade and the global economy.