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Previously published on LewRockwell.com

Social Decay and the Federal Reserve

by Eric Englund

When reading the news, sometimes I can't help but to feel that the United States is being gripped by a grinding cancer causing a slow yet certain social decay (which may lead to America's ultimate demise). For example, the June 12, 2002 Seattle News Fax contained an article headlined "Youth Gangs Spreading Everywhere in America." This article pointed out that there are about 24,500 youth gangs with a combined membership in excess of 750,000. Such a proliferation of gangs indicates an ongoing breakdown of the American family, and therefore, society itself. A headline in the June 20, 2002, Seattle News Fax reads as follows: "1 of 6 Rural Kids Live in Poverty."

How can the proliferation of gangs and poverty happen in such a wealthy country? Left-wing academicians and members of the predominately socialist press typically lay the blame on capitalism. As they see it, capitalists exploit laborers and grow wealthy off of the surplus value (i.e. profits) generated by laborers. As time passes, the capitalists grow wealthier whilst the laborers become poorer. Thus, laborers experience ever-increasing difficulty in making ends meet and lose the means to hold a family together (which I argue is actually caused by the Federal Reserve itself). Naturally, the left's solution, to any social problem, is more government central planning. It is my intention to show you that monetary central planning (via the Federal Reserve) is a root cause of social decay. In turn, abolishing the Federal Reserve would be an important step in reversing this slow and grinding social-decay process.

In the historian Carroll Quigley's fabulous book, The Evolution of Civilizations, Dr. Quigley looks at the factors behind the rise and fall of civilizations. Through his research, he identified seven stages (of historical change) that all civilizations experience. They are as follows:

  1. Mixture
  2. Gestation
  3. Expansion
  4. Conflict
  5. Universal empire
  6. Decay
  7. Invasion

In this book, Dr. Quigley defines a civilization as "a producing society with an instrument of expansion." However, according to Carroll Quigley, when a society's instrument of expansion is transformed into an institution that serves its own needs (regardless of the negative impact on society itself), it is inevitable the civilization will decay.

Indeed, Carroll Quigley did identify capitalism as an instrument of expansion. Where I differ from Dr. Quigley is that he believed central banking was a necessary ingredient for a capitalist society to prosper and grow. In fact, the opposite is true in that a central bank is an institution that usurps a free-market's money supply (such as gold and silver), and destabilizes a capitalist society via boom-bust cycles created by the central bank's manipulation of money and credit. Adherents to Austrian economics know this (for more details, please refer to Murray Rothbard's book The Case Against the Fed). To go one step further, I intend to demonstrate that a central bank is an institution antithetical to capitalism (which is the opposite of Carroll Quigley's conclusion). Therefore, a central bank (i.e. the Federal Reserve) is an institution that does not bring about sustainable expansion; instead, it is an institution directly responsible for social decay in a capitalist society.

Few would argue against the premise that poverty and social decay go hand in hand. As any adherent to Austrian economics knows, inflation is a hidden, pernicious, and redistributive tax. Moreover, it is a central bank that causes inflation. When a central bank can create money out of thin air, the power to depreciate money is frightening and eventually socially devastating. Let's look at the United States' Federal Reserve and its long-term destruction of the dollar's purchasing power. Since the Federal Reserve's founding in 1913, the dollar's purchasing power has depreciated by over 94% (go to the Bureau of Labor Statistics' web site www.bls.gov and you can confirm this horrific destruction of the dollar by using this site's inflation calculator).

If having the government create money out of thin air leads to prosperity, then Argentina and Brazil should have become the world's wealthiest countries by the end of the 1980s. Instead, the ravages of inflation lead to greater poverty and massive social unrest in both of these countries (and history is repeating itself in the new millennium). It is simply amazing that the left-wing intelligentsia hasn't figured this out yet. Families in America are having more difficulty making ends meet because, in general, the prices of goods and services have been rising over time (directly due to the dollar's depreciation brought on by the Federal Reserve). Using a little bit of logic here, doesn't it stand to reason that it will be more difficult to climb out of poverty if the prices of goods and services are rising continuously?

The very entity that Dr. Quigley felt was necessary for capitalism to succeed (i.e. a central bank), is actually a destructive institution that brings about poverty and social decay through the pernicious tax of inflation. Nevertheless, Carroll Quigley is correct that a civilization will decay once the society's instrument of expansion, one way or another, is transformed into a self-serving institution. Just look at the Federal Reserve.

In Paul Cantor's piece "Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics" (published in The Review of Austrian Economics vol. 7, No. 1; 1994), Dr. Cantor uses the tools provided by Austrian economics to review Thomas Mann's book Disorder and Early Sorrow (which described the rapid social decay of Weimar Germany during its bout of hyperinflation). In this masterful piece, Dr. Cantor states the following about the social destructiveness of central banking:

If modernity is characterized by a loss of the sense of the real, this fact is connected to what has happened to money in the twentieth century. Everything threatens to become unreal once money ceases to be real. I said that a strong sense of counterfeit reality prevails in Disorder and Early Sorrow. That fact is ultimately to be traced to the biggest counterfeiter of them all - the government and its printing presses. Hyperinflation occurs when a government starts printing all the money it wants, that is to say, when the government becomes a counterfeiter. Inflation is that moment when as a result of government action the distinction between real money and fake money begins to dissolve. That is why inflation has such a corrosive effect on society. Money is one of the primary measures of value in any society, perhaps the primary one, the principal repository of value. As such, money is a central source of stability, continuity, and coherence in any community. Hence to tamper with the basic money supply is to tamper with a community's sense of value. By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society.

As Dr. Cantor points out in his piece, hyperinflation detrimentally alters the fabric of society. For example, it became impossible for parents (in Weimar Germany) to teach their children the virtue of saving when the currency was depreciating at breathtaking speed (literally hour by hour). Instead, the typical profligacy of youth became a virtue in a hyperinflationary environment. Dr. Cantor went on to state: "In an inflationary environment, all the normal virtues of the old suddenly start to work against them, while all the normal vices of the young suddenly seem to look like wisdom."

Additionally, as Germans were forced to economize on the products they purchased, inferior substitute (ersatz) products emerged. Instead of purchasing quality products, Germans found themselves purchasing watered down beer, ersatz coffee, and shoes made of imitation leather. Standards, values, and expectations all had to be lowered (or radically altered) as a result of hyperinflation. German society rapidly decayed and the seeds were sown for the irrational and nihilistic National Socialist (Nazi) party to emerge as Germany's savior. Granted, there were other factors involved in bringing the National Socialists to power, nevertheless, hyperinflation had plunged German society to such depths that even a madman (Hitler) appeared to have a rational plan to restore Germany to its previous glory. Partially thanks to hyperinflation, rational thinking had been supplanted by mass irrationality. At the epicenter of this horrifying social decay was Weimar Germany's central bank (the ultimate perpetrator of hyperinflation).

It is my belief that the United States is experiencing the same social decay, as did Weimar Germany, but over a longer period of time. As a result of a much more gradual (yet still pernicious) process of central-bank induced inflation, American families have found it necessary for both the mother and the father to work in order to make ends meet. With the stay-at-home mother now much more the exception than the rule, so many American children have come to rely on daycares and public schools for providing "structure" in daily life. Unfortunately, with the left-wing orientation of public educators, children are indoctrinated with corrosive ideas such as "there is no right and wrong" and that it is a sign of wisdom to be non-judgmental (maybe, in the near future, even pedophilia will become an acceptable lifestyle "choice"). In order to make children feel good about such nonsense, we now witness grade inflation to reward kids for actually learning nothing (talk about irrationality). As these "products" of public schools become parents, the parental duty of instilling morals and values into children becomes a relic of the past. Without a doubt, there is a direct link between the depreciation of our money and the decay of the American family and, therefore, American society.

Just as Weimar Germany became a society accustomed to imitation products and lower standards, American culture has, over time, become accustomed to counterfeit intelligence (and, thus, lower standards as well). For example, just look at the lowbrow, left-wing inspired movements of political correctness and multiculturalism. On college campuses throughout America, students are indoctrinated to be non-judgmental, politically correct, multiculturalists except when it comes to judging Western Civilization to be the scourge of the planet. In my opinion, such anti-intellectual movements have hatched what appears to be an ersatz culture in the United States.

For instance, MTV, VH1, and the music industry have glorified gangs. However, are not gangs simply imitation families? Moreover, the hip hop music (aka: rap music) so popular today certainly glorifies the aforementioned gangs and is wildly popular amongst today's youths. It certainly does not take much talent to talk out (i.e. rap) some nihilistic "lyrics" to background muzak generated by a computer. And this passes for talent today. I would argue that this is only imitation music. Now, the rage on television is "reality TV." Anyone with half a brain must understand how contrived these shows are and that such shows should be truthfully labeled "ersatz-reality TV." However, if I was thoroughly indoctrinated to be non-judgmental (and, once again this passes for a sign of intelligence) then I would quite literally be a fool to judge anything to be good or bad. I no longer wonder why so many of today's youths and "twenty-somethings" are irrational and nihilistic. Their brains are overloaded with counterfeit knowledge.

Another sign of America's social decay can be seen by an alarming lack of fear of debt (which translates to an utter lack of concern for future generations in America). For example, the national debt is now over $6 trillion. Moreover, Americans have record levels of mortgage and credit card debt (to help make ends meet). Americans are literally living on borrowed money and borrowed time. Just think of it, when the Federal Reserve creates money out of thin air (i.e. imitation money), we Americans can exchange these inherently worthless pieces of paper for real goods produced in other countries (and we are doing so at record levels: just look at the United States' mammoth current account deficit of over $1 billion per day). For the time being, America appears to still be prosperous and relatively strong economically. However, this is an imitation prosperity conjured up by the Federal Reserve and its irresponsibly aggressive monetary creation. In other words, Americans are "getting ahead" through political means (via the Federal Reserve) instead of by real economic means. Therefore, the following quote from The Evolution of Civilizations is appropriate as it deals with what happens to a society when its people (wittingly or not) seek to "get ahead" by any means other than economic expansion:

Unable to get ahead by other means (such as economic means), they seek to get ahead by political action, above all by taking wealth from their political neighbors. At the same time they turn to irrationality to compensate for the growing insecurity in life...for the growing bitterness and dangers of class struggle, for the growing social disruption and insecurity from imperialist wars. This is generally a period of gambling, use of narcotics or intoxicants, obsession with sex (frequently as perversion), increasing crime, growing numbers of neurotics and psychotics, growing obsession with death and with the Hereafter.

Does it not stand to reason now that a central bank is an evil institution capable of decimating a society in a matter of years (like Weimar Germany) or over a period of decades (as is happening in the U.S.)? Capitalism is a viable instrument of peaceful social expansion and prosperity only when its lifeblood (money) is selected on the marketplace itself (such as gold and silver). When a society's instrument of expansion (capitalism) is transformed into an institution (i.e. the Federal Reserve and its banking cartel), history has shown that such a transformation leads to the decay of civilization. Paul Cantor certainly knew what he was saying when he stated: "By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society."

We have seen this gradual decay process in the United States. Just look all around you. In order to change the United States' course for the better, it is mandatory that we abolish the Federal Reserve and restore a 100% gold standard. Do not lose sight of the fact that prices for goods and services would tend to decline over time under a 100% gold standard. This would bode well for all families and, thus, American society itself. It is time to excise the cancer of fiat money from the United States.

August 22, 2002

The Hyperinflation Survival Guide, Published by Eric Englund.