2011-05-23

The Avenger is Reality. The Name of the Weapon is Inflation.

Perhaps the most convoluted paragraph Rand ever wrote was:
If I told you that the precondition of inflation is psycho-epitemological - that inflation is hidden under perceptual illusions created by broken conceptual links - you would not understand me. That is what I propose to explain and to prove.
-- Rand, Ayn, "Egalitarianism and Inflation," Philosophy: Who Needs It, Centennial Edition, pp. 169-170.

That passage is followed by what is, for my money, the clearest explanation of what inflation is, where it comes from, and how it impacts the macroeconomy ever put in print. I re-read it this morning after my workout and was very impressed.

I remember not being completely won over by this essay the last time I read it. Amazing what a couple of years studying Austrian School economics will do. Rand was right: I didn't understand it initially.

Rand implies but never clearly states one idea that people must learn to fully grasp. The government (any government) doesn't produce anything. The government is purely a consumer. When we ask the government to pay for something, what we are really asking is that society spend its accumulated savings - as well as its potential to invest in more efficient means of production - on something we want now.

Therefore, with every government expenditure, there is: (1) a loss of personal savings; (2) a decreased capacity to produce new goods and services; (3) a reduced inability to invest in more efficient production; (4) an increase in the overall price level; (5) a decrease in the value of money-in-hand; and (6) a reduced ability to consume in the future.

Is it worth it? Really?