Business Cycles, Price Signals, and Wealth Creation
Posted by Orrin Woodward on October 31, 2013
Finally, I am back to work on my book on society and state. The problem with a project like this is: for every paragraph I write, it seems that I need to read 5-10 more books to explain it properly. In any event, I am having a blast and enjoying the process of learning just as much as I enjoy sharing what I have learned here. LIFE Leadership is an entire company of learners who continue to grow themselves on purpose to Have Fun, Make Money, and Make a Difference!
With all that said, there is still one more price to be paid by the state’s manipulation of the money supply, namely, the creation of inflationary and deflationary cycles. These cycles can be produced at will by the financial powers-that-be simply by expanding or contracting the money supply within a country. The damage rendered to the entrepreneurs ability to predict in the future is not difficult to perceive. For as economist Israel Kirzner summarized, “Entrepreneurship is the alertness to and foresight of market conditions; it must necessarily precede actions taken in accordance with that alertness.” However, when the money supply is manipulated by the financial elites, the elites gain at the entrepreneurs expense. For instance, if a person had a crystal ball to identify when stock prices would rise and fall, no one would be surprised by his wealth accumulation. Likewise, if a person controlled the money supply of a country he could not only predict the rise and fall of all prices, but also control when the prices did so. This is the biggest opening for the Five Laws of Decline within modern society and one that needs to be addressed immediately. For it should not be surprising to anyone who understands the FLD, that permitting any group total control of a nation’s money supply is akin to unsupervised access to each citizen’s bank accounts to plunder them at will. In other words, what person couldn’t get wealthy if he had the power to inflate and deflate the money supply on command? Unfortunately, however, the financial elites gain is funded by the entrepreneurs loss. For when the downward cycle dries up the demand for the entrepreneurs products, he is still responsible to pay the full price of bank loans even though his business is now worth cents on the dollar.
The business cycle, in essence, damages the entrepreneurs ability to predict future demand based upon the markets price signals because the price signals are being manipulated by third parties. Accordingly, the state’s inflationary/deflationary cycles, by jamming the true price signals, cause entrepreneurs to make inaccurate market judgements of future demand and prices, resulting in numerous unnecessary business failures. Moreover, however, it isn’t just entrepreneurs that are sheared in this monetary fraud. For anyone investing in stocks, real estate, or simply working a job is damaged by the fluctuating money supply cycles. Interestingly, the business cycle is a modern phenomena, which, not coincidentally, didn’t appear until the state managed to gain control of the nation’s money supply. Hence, in reality, a more accurate name for this modern phenomena would be the state-induced inflationary cycle. For previous to the state capturing society’s money supply, the gold standard forced fiscal responsibility and restraint upon the state by requiring each nation to back its currency with gold upon demand. Indeed, the gold-standard provided a systematic check upon the FLD, causing the financial elites, not surprisingly, to seek ways to undermine this check. Unfortunately, modern nations, over a period of years, freed themselves from the gold-standard restraint, leaving them free to inflate and deflate the money supply at their discretion. Disastrously, as a result, through society surrendering to the state the total control of its money supply, the unchecked FLD has predictably sown its debilitating effects. The financial elites shear society’s unsuspecting sheep while everyone wonders why he or she cannot seem to get ahead.
If the reader is going to study one graph, study the one to the left. It displays the massive damage that the state has done to America’s purchasing power per dollar. This injustice must end as it is a hidden tax upon those who do not understand the unethical actions draining American society of its wealth. Murray Rothbard, as usual, does the best job of describing inflation and money supply issues in his fantastic book Mystery of Banking:
Inflation is a process of subtle expropriation, where the victims understand that prices have gone up but not why this has happened. And the inflation of counterfeiting does not even confer the benefit of adding to the nonmonetary uses of the money commodity. Government is supposed to apprehend counterfeiters and duly break up and punish their operations. But what if government itself turns counterfeiter? In that case, there is no hope of combating this activity by inventing superior detection devices. The difficulty is far greater than that. The governmental counterfeiting process did not really hit its stride until the invention of paper money. . .
Consider the following: Apart from questions of distribution, an increase of consumer goods, or of productive resources, clearly confers a net social benefit. For consumer goods are consumed, used up, in the process of consumption, while capital and natural resources are used up in the process of production. Overall, then, the more consumer goods or capital goods or natural resources the better. But money is uniquely different. For money is never used up, in consumption or production, despite the fact that it is indispensable to the production and exchange of goods. Money is simply transferred from one person’s assets to another.1 Unlike consumer or capital goods, we cannot say that the more money in circulation the better. In fact, since money only performs an exchange function, we can assert with the Ricardians and with Ludwig von Mises that any supply of money will be equally optimal with any other. In short, it doesn’t matter what the money supply may be; every M will be just as good as any other for performing its cash balance exchange function.