A Corrosive and Divided World
Have you looked at the world lately and felt that things are different? Perhaps more divided, chaotic, filled with anger, or even hopeless? Maybe you haven’t had the time to look at the world because you’re too busy trying to keep up with everything in your own life. It can feel like you’re on a hamster wheel. For me, this moment came when I started calculating my future retirement funds. The realization that I either had to find a way to make a lot more money or I might never retire set in, and things began to feel a little hopeless. The dollar doesn’t buy as much as it used to, but I believe that is pretty common knowledge. The big question is why is this happening?
Much of this frustration and disconnect comes from our global monetary system breaking down. This may sound like a stretch, but when you consider what money touches in our lives, you begin to realize that if money is broken or corrupted, it cascades through all of society and begins to break down everything else. The reason this is true is that money is essentially a language of value upon which society is built. Without some form of money, we wouldn’t have the societal structures we have today. However, when money becomes corrupted, such as the ability to print money at will, society itself begins to corrupt.
Inflation
As an example, let’s consider the scenario of inflation and how it corrupts business decisions, using the production of wine as an illustration. When inflation sets in, the supplies, production, and shipping of wine become more expensive. So, what does the producer do? Well, they have three options, each with different consequences.
1.) Option one is to keep the price the same to remain consistent for their customers, but this poses the risk of reduced margins or operating at a loss. This could lead to job cuts, resulting in a weaker product, lower production, or potentially delayed deliveries.
2.) Option two is to raise prices. Doing so risks losing business at those higher prices, as people often become upset or perceive it as price gouging.
3.) Option three is to dilute the wine, perhaps with water, to reduce costs while sacrificing product quality.
Most producers tend to choose option two or three. If option three is chosen, they risk bad publicity if someone finds out, potentially leading to lost business. The worst scenario occurs when other wine producers follow suit, resulting in an inferior product across the entire economy. Now, imagine this scenario applied to the global marketplace, affecting all the products and services you enjoy or need. It has a cascading effect, and everyone suffers. Most of the time, consumers are frustrated with higher prices or lower quality products, attacking businesses without fully understanding the reasons behind these changes, often blaming the businesses instead of recognizing the role inflation plays.
From an individual perspective, inflation is even more insidious. Most people work 40 hours a week to cover the essentials of daily life, but when inflation sets in, they are forced to work longer hours- say 42, 45, or even 50+ hours, just to maintain the same standard of living. Inflation effectively steals your time, time that could be spent with family, pursuing hobbies, or creating something new. You might even need to pay for more childcare due to increased work hours, potentially falling further behind. Can you see how insidious this is?
This is the root of societal frustration. Money is breaking down right before our eyes, but it’s difficult to grasp the full picture. That is why people are upset and looking for someone to blame yet don’t fully understand the reason. Many people have to live with roommates or their parents because they can’t afford their own place. Fast food becomes the best meal option for some because it is cheaper, leading to health issues and increased medical costs. Education costs continue to rise, forcing people to either accumulate more debt or abandon their education thus limiting their access to higher-paying jobs and exacerbating their struggles. Even politics is stuck in a loop, with politicians unable to cut spending and welfare programs without losing their chance of being reelected. Instead, promising to give money to everyone and blaming the other side for societal problems has become the winning strategy. In reality, they are more concerned with their ability to be elected than actually helping the people they serve. This is where the division comes from. This is the vicious cycle of inflation.
None of this helps people build a better version of themselves or their communities because we are all pushed into survival mode. I can’t fully grasp what will happen as more and more money is printed to sustain this, but let’s be clear; they cannot stop printing money, or the system will completely collapse, a scenario for which virtually no one is prepared.
Cantillon Effect
Inflation in the money supply also creates a scenario called the Cantillon effect. The Cantillon effect refers to the idea that changes in the money supply in an economy cause the redistribution of purchasing power among people, disturb the relative prices of goods and services, and lead to the misallocation of scarce resources, as first described by the 18th-century economist Richard Cantillon.
For example, let's outline a situation in which a company, supported by government subsidies paid for with printed money, impacts the housing market to demonstrate the Cantillon effect. When the government prints money to subsidize a company, there are a lot of unseen effects that take place. The free market is disrupted and prices are dislodged from reality. When a company is subsidized, the company now makes money no matter how well it performs. The incentive to provide high quality goods or services declines compared to a company who has to survive on its own in a free market. The subsidized company may even lack the incentive to perform ethically as they know they will be funded no matter what. This company can now beat out competition without having to provide better goods and services than its competitors. If this happens in areas all across the economy, then there becomes several companies that hold all the wealth and they become “too big to fail.” The government will bail them out and provide them with more money in order to keep them afloat. This makes beating out competition rather easy. With no competition left, these companies become incredibly wealthy and are able to influence policy. These wealthy and well-connected companies, and individuals who run them, become first in line to the newly printed money. This gives them the ability to buy assets before the inflation sets in. This new demand begins to push up asset prices before the newly printed money gets to the hands of the middle and lower class. Those who have hard and scarce assets such as houses have an advantage when the money supply is increased. As we discussed with inflation, the more money they print, the higher prices become including asset prices. So, wealthy individuals and companies who already have assets see the value of their assets increase because of the increase in the money supply, which starts to price out the middle and lower class from being able to purchase and own assets for themselves. When the value of the dollar is decreasing and asset prices continue to climb, the incentive align to own more assets such as a second or third home to continue to save or even increase wealth. This increases the wealth gap without anyone actually adding any true value to the economy.
The Cantillon Effect and inflation become a hidden tax that hits the middle and lower class much harder than higher earners. Since the middle and lower class don’t have as many hard assets, the 2% inflation (or more as we have seen since 2020) consistently steals wealth from these people. The higher income earners who have assets see their value increase well over the 2% inflation mark, so they are actually increasing their net wealth without providing any extra value, while everyone else is having their wealth stolen from them. This is where the wealth gap gets even larger and where civil unrest begins to set in due to a bigger divide in society. This unrest leads to populist leaders who pit one side against the other and it is happening all over the world.
So, why are we told that a 2% inflation target is necessary for an economy to function? Or, even better, why is stealing 2% of everyone’s wealth considered good for society? I have not found a good answer to this question. We are led to believe that this is what needs to happen in a functioning economy, but I would argue that the problems we are seeing in society are because we have inflation.
This is not a call to hate the wealthy, as most of us would like to be wealthy, and if we were, we would do the same thing to preserve our wealth. This is to bring awareness to a deeper problem that money printing creates. This problem cannot be fixed from the system; the system is the problem. We need a new set of rules to play by. A fair set of rules where everyone knows the rules and a small group of government officials can’t change them on a whim. Thankfully, for the first time in human history, there is another system to opt into. One with fair rules that levels the playing field. A set of rules that does not favor any one person over another no matter how much money they have. This system is Bitcoin.
In the next article, we will discuss Bitcoin, what it is, and how it differs from any other money that the world has ever seen before. If this has piqued your interest so far or even if you’re still skeptical, I highly recommend two resources. The first is a one-hour podcast that provides a different perspective on inflation and its societal effects. The second is a website featuring charts focused on the year 1971, when we officially abandoned the gold standard, marking the beginning of accelerated money printing. These resources offer eye-opening insights, and once you start exploring this topic, it is challenging to look away.
https://open.spotify.com/episode/5nHUtzovz1jjJn7uK31K76?si=72c88928ccb54bf4
https://wtfhappenedin1971.com/
Part 4 of the series can be found here.