Sunday, April 27, 2008

Mises, Incentives, and Inflation

The Same Old Story

Governments have for ages been using inflationary monetary policies to hide the cost of wars, secretly tax the masses, and pass the blame to "profiteers" (congress and oil companies anyone?). With the advent of debt money, this has been pushed to ever greater extremes.

Here is Mises writing in 1912:
Who has any doubt that the belligerent peoples of Europe would have tired of war much more quickly if their governments had clearly and candidly laid before them at the time the account of their war expenditure? In no European country did the war party dare to impose taxation on the masses to any considerable extent for meeting the cost of the war. Even in England, the classical country of "sound money," the printing presses were set in motion. Inflation had the great advantage of evoking an appearance of economic prosperity and of increase of wealth, of falsifying calculations made in terms of money, and so of concealing the consumption of capital. Inflation gave rise to the pseudo-profits of the entrepreneur and capitalist which could be treated as income and have specially heavy taxes imposed upon them without the public at large -- or often even the actual taxpayers themselves -- seeing that portions of capital were thus being taxed away. Inflation made it possible to divert the fury of the people to "speculators" and "profiteers." Thus it proved itself an excellent psychological resource of the destructive and annihilist war policy.

Von Mises - The Theory of Money and Credit p. 254

Here was the story we were told without being told in 2003 by the War Party:

WASHINGTON (CNN) -- The White House is downplaying published reports of an estimated $50 billion to $60 billion price tag for a war with Iraq, saying it is "impossible" to estimate the cost at this time.

Now with official estimates topping $1 trillion dollars and more realistic projections over $4 trillion there can be no doubt that the masses would not stand to pay for this by means of direct taxation. When listening to the War Party beat their drums and recommend monetary policy, economics reminds us as always to look to the incentives. Yet most persistent of all, History softly thunders "there is nothing new under the sun".