The Message of Depression; P.L. Poirot

The Message of Depression PAUL L. POIROT WHATEVER ELSE may be said for or against it, the boom period of an inflation is marked by extensive waste of scarce and valuable re sources. This is not to say that the user knows at the time that he is ,wasting resources. Only in retro spect, during the depression that necessarily follows such a boom, is there clear evidence that the prior practices were wasteful. The pain ful message the depression brings is: "Curb the waste!" Waste is the child of excess. The boom period generates an illusion of abundance of goods and services - the reality being a lot of bad money. The more bad money peo ple acquire, the faster they'll try to spend it. This explains the wasteful spending habits that de velop in the boom phase of infla tion. Scarce resources are malin vested and used recklessly-as seen more soberly in retrospect. A plethora of cheap money and cred it, like any form of subsidy, makes 216 scarce resources appear to be more plen tiful and less costly than they really are. We consume too much too fast of those things we think "someone else" is paying for. Bad money plays tricks on us - until the depression comes. Then we're sorry.

We barely get started with all sorts of boom-time schemes to clean the air and the water and the slums, to rid the world of illite racy and starvation and disease, to preserve or restore the state of Nature, provide an abundance of housing, medication, transporta tion, recreation - the satisfaction of every form of human need or aspiration - when suddenly and apparently without warning we face a meat shortage, a grain shortage, a lumber shortage, a sugar shortage, a fuel shortage in fact, a serious shortage of ev ery scarce resource in the world. If we're now serious about stop ping waste, the first step will be to 1975 THE MESSAGE OF DEPRESSION 217 learn to recognize what is waste ful before the waste occurs. And that won't be easy. Oh, sure, you know very wen when I'm wasting something; and I can see clearly how wasteful you are. Perhaps we could even agree to talk it over, and try to take each other's advice. But, that isn't real ly the problem. I'm content to have you use your own resources as you please. If you want to waste some of them, you'll get no criticism or complaint from orne so long as your waste isn't inj uring me or damag ing my property.

I believe that you do not run about consciously trying to waste your time or energy or property. Wi th more wisdom and will power, perhaps you could multiply your productive efficiency. But you try to 'do your best with what you have. You act to serve the most urgent need of each moment, as you then see it. Why do I believe you'll act in such a manner? Be cause, that is how I act. So, I re spect your use of your resources, and would hope you'll respect my choices. Without The Owner's Consent The problem - the waste I de plore - is the action of any person or group to use my resources, my property, my life for purposes I can't approve. So I object to theft, fraud, coercive acts of any kind against me, especially coeTcive governmental actions that go be yond what I believe are the lim ited, proper functions of govern ment. And it appears that such governmental waste is most fla grant during the printing-press financing of an inflationary boom.

True, the size and scope of gov ernment is always a compromise. Some persons want more govern ment regulation and control; some want less. So we get about as much governing as the prevailing majority will tolerate in taxes. And the minority, plus a number of those of the majority, will see in the resultant compromise many items of waste. At least, this is the situation during "normal times," when it is reasonably clear to the electorate what the government has in mind doing and who will be taxed how much to pay for it. Let us return now to the real problem: the excessive waste dur ing an inflationary boom. Such waste is backed by all sorts of pl,ausible arguments and good in tentions, but the key to the exces sive waste lies in the method used to finance it - the arbitrary gov ernment expansion of money and credit. The government simply prints the money it spends to with draw goods and services from the market. It doesn't reduce the quan tity of money remaining in the pockets of civilians - it just di218 THE FREEMAN April minishes the supplies of goods and services. This is what makes it so difficult to see the costs - to identi fy the wasteful spending at the time it happens. But the waste does occur, the spending increases, the supply of irredeemable paper money expands, goods become scarce, controls are applied in mul tiple phases, businesses fail, unem ployment rises, producers and con sumers become depressed.

Our depression is j ustified. We have been tricked with bad money. The government has wasted our resources. The message that some how must be learned by the cit izenry before it will be conveyed to Congress is to stop that waste; stop squandering and start pro tecting our savings; let us serve ourselves and one another through honest production and trade; let us choose a ,money we can trust so we can know, at the time, the cost of our actions; let us own gold. Why gold? Because governments have no power to arbitrarily in crease the supply. It can't be counterfeited. It is honest money. That could be the message of the current depression if we will learn it; but it most certainly will never be delivered to Congress un less and until we do learn it thor oughly. Meanwhile, instead of stopping the waste, irresponsible govern ments will try to stop the depression - by further deficit spending, and printing more money. Pro ducers will be maligned for what they have brought to market rather than encouraged to produce and offer more. Consumers will be asked to voluntarily shiver and starve rather than spend their cash holdings to draw goods from the market. The usual premise of those whom we elect to govern us is that they know better how to use our resources than we do. And the longer we allow that premise to go unchallenged, the more of our precious resources will be wasted. Those resources are drawn from the market for purposes we do not understand or approve, with unlimited issue of fiat money that the government forces upon us as legal tender~ even though produc ers and traders have every reason to mistrust it as a medium of ex change.

International Consequences of Political Intervention The domestic consequences of the3e political interventions are serious enough. Citizens are reg ulated and controlled and taxed, producers are punished, business es are driven into bankruptcy and then nationalized, to be govern mentally operated with "post-of fice efficiency." As welfare pro grams proliferate, the "clients" sink into the ever-declining level 1975 THE MESSAGE OF DEPRESSION 219 of living characteristic of social ized societies. Waste is the order of the day, and the economy is weakened as more and more gov ernment control displaces the func tioning of the market. But the dis aster does not stop at the· national borders. A weakened nation can neither compete successfully in world mar kets nor can it comimand interna tional respect by reason of its military might. It simply tends to waste away. And such a weakened economic and political machine is in no position to cope with an en ergy crisis. Attempts to throw the blame on the Arabs or other pro ducers of oil - some mysterious international cartel-have a hol low ring. How stepped-up waste of resources can make the United States self-sufficient by 1985 is never explained. How further self imposed tariffs and embargoes w;ill help us get the oil we need is far from clear. How more paper mon ey, which already is unacceptable in international trade, will buy us friends abroad or keep us warm at home is a puzzle. Have we not had sufficient experience with the bad money government provides, and the excessive waste of resources under government control, to get the message and relay it to Con gress: "Stop the waste and leave us to our own choices in the world market. Let us buy and sell on our own terms in the money of our choice."

It might be very interesting and instructive to see what a few piec es of gold thrown into the inter national oil cartel would do to it. Who knows how many gallons of oil some producer might release for one ounce of the precious metal? Or how many other pro ducers or potential producers of oil might rise to the bait and offer fuel at bargain rates for that kind of money? Once American citizens are properly depressed over govern ment waste through monetary manipulation, they may then get the message to Congress to let money be whatever the market says it is. Then, if government has need for resources, let them be taken dire'ctly and openly from owners - not through a mystify ing monetary procedure. Citizens then might still con done some wasteful government spending. Men do make mistakes. But the tendency is to correct such mistakes most rapidly when the costs are instantly and clearly re vealed. The dreadful cost of let ting the government prescribe and manage our money is now becom ing clear. If that mistake is cor rected, it would go far to curb nu merous other wasteful practices and our depression will not have been in vain. ~ DAVE OSTERFELD t Doctrines and the Interes ~g @ IS THE WRITINGS of the classical economists were beset by an in ternal contradiction. On the one hand, they believed that labor was the source of all value and that wage rates were determined by an antagonistic struggle with capital.