The Hidden Link Between Fiat Money and the Increasing Appeal of Socialism Among the Young
by Patrick Barron
For some time now I have been mulling over the possible causes of what seems to be an increase in the desire for socialism among the young. For someone of my generation (an early post war baby boomer), it is inexplicable. Socialism was at the heart of two of the most despised totalitarian regimes of the twentieth century: Nazi Germany and the Soviet Union. Both regimes murdered millions and enslaved hundreds of millions. Although the young may not wear swastikas or the hammer and sickle, they seem completely enamored of the policies that underpinned these regimes; i.e., more state control of the economy and our lives in order to achieve some vaguely stated paradise on earth.
The market economy of sound money vs. the political economy of fiat money
I suppose each generation feels that it understands reality to a better extent than the following generation, and I admit to this phenomenon. My early years were enjoyable, but there was no question that the purpose of one’s youth was to prepare oneself for a life of economic challenge. In other words, my generation assumed that our primary goal was to figure out how we would integrate ourselves into the market economy. Oh, we did not espouse this goal in such terms. We simply said that we wanted to find jobs that both appealed to us and would pay our way in the world. Our success in life would depend upon finding our niche in the market economy of serving others. Our reward was a paycheck.
This visceral understanding of the way the world really works stands in stark contrast to the likes of the Extinction Rebellion movement. These young people have learned that there is an alternative means to success and one that does not involve meeting the legitimate needs of one’s fellow men in the marketplace. It is the political process, whose underpinnings are fiat money printed in whatever quantities that are desired. Members of Extinction Rebellion are convinced that they KNOW that the world will end unless capitalism is replaced by socialism. Furthermore, they are convinced that socialism definitely can work, despite its unbroken history of failure.
What causes such seemingly unfounded confidence in socialism? In the aftermath of the Second World War Eric Hoffer wrote The True Believer in which he suggested that certain people are psychologically insecure and seek an all-encompassing world view to which they can dedicate themselves. These misfits (Hoffer’s word) seek acceptance in a mass movement. Hoffer claimed that the nature of the mass movement did not matter as much as the fact that it offered a simple solution to all of life’s challenges without further thought. In post war interviews, Nazi propagandists said that the easiest people to convert to the Nazi creed were communists. It was simply a matter of shirking off one totalitarian belief for another.
Unlimited money engenders the myth of unlimited real resources
The world was on a watered down version of a gold standard until 1971 when the US abandoned its solemn promise–the 1944 Bretton Woods Agreement— to back the dollar with gold at $35 per ounce. Gold backing of a currency provided a solid intellectual foundation of reality that few even recognized existed within themselves; i.e., that we live in a world of scarcity and uncertainty. Furthermore, wealth has to be built. It cannot be conjured out of thin air, just as gold cannot be conjured out of thin air.
But fiat currency CAN be conjured out of thin air and in enormous amounts. The longer a fiat currency is the coin of the land, the more one is led to believe that nothing should be in short supply, since everything is bought with money and money need not be in short supply. The young, who know only unlimited fiat money, soon demand free healthcare and free higher education as a right. And why not? Unlimited money will pay for it. Into this never-never land comes demands for scrapping the fossil fuel underpinnings of our modern economy by youth who understand nothing of how an economy works. But, apparently one does not need to understand technical limitations, because there are no technical limitations. The “barbarous relic” (gold) had once limited the money supply and thusly seemed to limit the supply of vendible goods. Gold has been replaced by unlimited fiat money. Now it seems that unlimited aggregate demand can be funded by unlimited fiat money, leading to a world of plenty. Designer of the Bretton Woods Agreement Lord Keynes says so in this very insightful short video.
Fiat Money Turns the World Upside Down
The psychological impact of a lifetime within a fiat money economy cannot be underestimated. One’s world is turned upside down. For many of the young financial success becomes prima facie evidence of exploitation of the masses rather than something to be admired and to which one could aspire also. Rather than integrate oneself into the capitalist, market economy, one is better served by integrating oneself into any number of politically oriented pressure groups. Rather than helping others achieve their dreams, thereby helping oneself achieve one’s own dreams, young people are more intent on thwarting others’ dreams. The envious young attribute the success of others to crass money grubbing or outright theft. Such a view may palliate their own relative lack of success. But success of life is a relative term and riches are not guaranteed. However, with proper foresight, hard work, and plain old fashioned civility one can go a long way toward fulfilling one’s dreams. Contrast these eternal virtues with Extinction Rebellion’s tactics of tying up foot, car, and rail traffic in London recently. In a capitalist, market economy one attempts to provide benefits to others, not hindrances to everyday life.
Other state interventions contribute to the lack of civility, such as higher minimum wage laws that prevent the young from getting that first, even though low paying, job. A job…any job…teaches us so much about work place expectations other than performing the stated tasks–showing up on time, dressing properly, being pleasant to customers and fellow employees, willingness to assist in tasks, especially unpleasant ones, that may not be one’s own, etc. But little can match fiat money for undermining the very fabric of the social order. With more money seemingly available at the click of a computer button, only an Ebenezer Scrooge would deny funding the latest demand. But that is the very reason that fiat money is so subversive to the social order. In a sound money economy any new spending program can be funded only by an increase in taxes, an increase in debt, or by cutting existing funding. There is a real cost to each of these options. There is a real cost to printing money, too, but the cost is hidden. One does not see malinvestment at the time of money printing. Price increases are delayed and uneven, due to the Cantillon Effect whereby the early receivers of new money are able to purchase goods and services at existing prices. Later receivers or those who do not receive the new money at all suffer higher prices and a reduction in their standard of living. Even then most people do not link higher retail prices with a previous expansion of the money supply.
It would be hard to invent a more effective method for the destruction of modern society. As Pogo would say, “We have met the enemy and he is us.”