Dr. Kemmerer, president of The Committee for Monetary Research and Education, Inc., taught economic history for many years at the University of Illinois.
As we drove from New Delhi to Agra to see India’s famous Taj Mahal, we passed through extremely primitive villages. There was not a petrol can, broken umbrella or empty bottle to be seen. We thought,”Perhaps a Time Machine has carried us back 1000 years or more.” In one dusty hamlet we saw an Indian woman wearing a crude anklet of silver. The reason for this abysmal squalor struck us. That silver was all her savings and no one was going to take it from her. She didn’t trust her neighbors and they didn’t trust anyone either. There could be no banks, and businessmen found it almost impossible to borrow. Progress was at a standstill and had been for centuries because an all-important ingredient was missing in that economy, the fabric of trust between men, that enables them to work together willingly toward productive ends.
When men work with tools and equipment—economists call these capital—they can produce more than when they work with bare hands. But to produce capital it takes a willingness to save and to invest those savings. And men will save little and invest less unless they trust their fellow men as individuals and believe that their property and savings will be safe and that the money of the realm will hold its buying power. These are the warp and woof of the fabric of trust.
In the United States today, due to government-caused expansion of the supply of money and credit, inflation is raging at a rate of about 13 per cent a year, double what it was two years ago. If this continues, the dollar will lose half of its present buying power in six years. That present buying power is only a fifth of what it was in 1933. Those conditions are not conducive to saving. The rate of saving and of capital investment is five per cent a year, the lowest among major modern nations.
Such misuse of power by government sets a bad example to many who then lash back at government and often at others too. The government should set an example of trustworthiness. Its courts punish counterfeiters, embezzlers and thieves. To find the government itself engaged in similar actions is demoralizing. A government that inflates and destroys the buying power of its money pours, as it were, a destructive acid over the economy’s fabric of trust which rots the fabric and seriously damages the economy.
Just how suspicious Americans are of their government’s money can be seen by the fact that millions of them are putting more and more of the savings they have left into gold, silver, diamonds, rare coins, stamps and paintings and antique furniture, to name just some items. All of these they increasingly look upon as preferable to banking their money, the buying power of which melts away like an ice cube in July. The degree of distrust can be gauged by the fact that the prices of these non-income producing “stores of value” have been bid up much higher than wholesale or consumer price levels have risen. Whereas price levels today are five times higher than in 1933, the price of gold is 29 times higher, of silver at least 70 times and of precious gems 20 to 60 times higher. These prices rise out of distrust and fear more than they do from speculation.
Inflation is rotting away the fabric of trust which helped so much to make this nation economically strong. Fear is rendering a growing portion of our savings as unproductive as that Indian woman’s anklet. President Carter has said we must lower our standard of living. He and Congress, and preceding administrations too, by their inflationary policies, have been bringing on that lowering process for some time. Let us hope that we never regress to conditions in those Indian villages, but we are headed in that direction. That precious fabric of trust is disintegrating before our eyes.