All Commentary
Thursday, May 1, 1958

Inflation is a Moral Problem

Inflation has become almost a  modern way of life. Only a few years ago Greek money dropped in purchasing power until the Ameri­can dollar exchanged for 30,000 drachma. For less than thirty-five dollars any American tourist could be a millionaire. The American dollar is a victim of creeping in­flation also, and its value in terms of purchasing power continues to decline.

Every one of the larger countries in Europe, Africa, and America has suffered seriously from infla­tion. In the last ten years, the pur­chasing power in these countries has declined all the way from 19 per cent in the case of Switzer­land to 95 per cent in Chile.

The problem of inflation is not an economic problem alone, it is also a political and moral problem. The ills of inflation are reaching epidemic proportions in modern society. West Germany, where sobering memories remain of the dreadful consequences of the in­flation of the mark after World War I, is making a heroic effort to avoid the temptations of a further unsound monetary policy. This self-imposed monetary discipline is earning West Germany world respect.

The economic problem is ap­parent enough. Once national cur­rency loses its fixed purchasing power, the ensuing breakdown of public trust contributes swiftly to an undermining of confidence in national policy and integrity. It may take more than a sound mone­tary policy to assure a nation’s survival, but that survival is not long possible in the absence of such a policy. Historians will find lit­tle difficulty in tracing a connec­tion between inflation and the fall of ancient Greece, of Crete, and of Rome. The day came inevitably in these countries when the effects of inflation were obvious; then the masses lost confidence in the cur­rency, considered savings futile, and stopped work. Even in our day people cease to save dollars with which to purchase insurance and bonds as soon as inflation eats away their equity at a rate ap­proaching their returns of interest or payments. The link between a sound monetary policy and public confidence, industry, and thrift is undeniable.

In the days of Greece and Rome, inflation was accomplished by “clipping the coins.” This was done by taking the coins then in circulation, reminting them so that they contained less gold or silver, and alleging that they had the same nominal value as there­tofore.

Many centuries later, with the advent of the printing press, kings and dictators, desirous of obtain­ing a larger income than they could conveniently acquire by taxation, resorted to the simple proc­ess of printing more paper money, alleging that this money had the same nominal value as did the less­er amount of money which previ­ously existed.

A number of years ago our gov­ernment compelled the American people to give up their gold in ex­change for a piece of paper hav­ing an alleged value equal to the gold. Today credit is used largely in place of money, and the govern­ment, through bank control of credit, can and does increase the supply of credit at will.

Thus we see that all down through the corridors of time in­flation has been due to the increase in the quantity of money; first by clipping coins, then by the use of the printing press, and finally by governments using banks for in­creasing money and credit.

High Prices Are a Consequence

It is commonly thought that anything that raises prices is in­flation, but this is simply not true. High prices are no more the cause of inflation than wet streets are the cause of rain. High prices may be the result of inflation, just as wet streets may be the result of rain. There are, however, many factors which affect price, but there is only one economic cause for inflation — that cause is the increase in the quantity of money and credit.

What of the spiral of wage-cost ­price-inflation which now seems to loom as a permanent feature of American life? Many people be­lieve that inflation results when industry is compelled to raise its prices in order to meet its in­creased labor costs. But such is not the case. If wages and prices are increased excessively and are not accompanied by an increase in the money supply, then the supply of money will be insufficient to make possible the payment of these higher costs, and unemployment will ensue. Obviously at this point the process must be reversed if un­employment is to be stopped. This is accomplished by reducing wages, then costs, and finally prices. It now becomes clear that govern­ment must be held strictly account­able for inflation because govern­ment, and government only, is re­sponsible for the money supply.

What really concerns us is not the wage-cost-price spiral, but the wage-cost-price-money increase spiral. This spiral has been repeated many times and will con­tinue to be repeated unless and un­til the government takes a firm action designed to stop the in­crease in the money supply. Un­less this is done, the dollar will become worthless and anarchy will stalk the land. Thus far the pro­ductive efficiency of American industry has, by expanding the vol­ume of goods produced per worker, kept prices far below what they would have been had they been in­fluenced solely by inflation.

Root of Other Evils

Inflation is primarily a moral problem in that the increase in the quantity of money and expand­ing of credit makes it possible for the government to meet its expenditures with money of a constantly decreasing nominal value. Covet­ing is also involved, because the politicians covet the wealth in the country and use inflation as a means of acquiring it for the de­velopment of an ever-increasing bureaucracy. Inflation is also bear­ing false witness. Those who are responsible for it claim that paper is money when it is not money. It is simply not true to say that a piece of paper backed by nothing is worth as much as a piece of paper backed by gold. Plainly stated, inflation involves an ele­ment of lying, coveting, and steal­ing. Under it government reaches into the safe deposit box of every individual and reduces the value of that which is within the box.

The existence of unsound money is one of the socially demoralizing factors in any civilization. It de­prives the aged, who have long practiced the virtues of industry and thrift, of their proper reward. It discourages the young from ex­ercising their ingenuity, resource­fulness, and industry because they see no way by which they can be rewarded for their efforts. Once it is clear that the intrinsic value of money is compromised, men will turn from savings and insurance and other provision for the future, in order to spend the earnings be­fore purchasing power further de­clines. The people lose hope in their future. Moral deterioration follows the debasement of the dollar. The government’s weakening of faith in honest currency exacts the cost­ly toll of encouraging a wider range of dishonesty in economic affairs. The moral law flouted at one level weakens regard for the moral law at other levels. Trusted money is a critical concern for any nation that marks its currency, In God we trust. For the distrust of such currency will surely lead to a distrust of God, the end of representative government, and enslave­ment of people.    

Excerpted from Christianity Today, Jan­uary 6, 1958.