Inflation And The Market Economy

How More Of The Former Hurts The Latter

Back in January, I posted a piece in which I discussed one of Wilhelm Roepke’s most important contributions to economic thought generally and the defense of the free economy in particular. I wrote:

I think his greatest contribution…was his response to something that the Marxists highlighted as a failure of capitalism. They argued that one of capitalism’s injustices (if not its chief injustice, in fact) was that an entire class of people (the proletariat) had no access to means of production of their own, and thus were reduced to a state of dependency on another class of people (the bourgeoisie). Possessing nothing to sell but their own “labor power,” the proletariat became “wage slaves.” The solution to this problem? Simple: Social revolution. The wage slaves should rise up, seize control of the means of production, establish the “dictatorship of the proletariat,” and march toward the Golden Age. We all know the story, I’m fairly certain.

Here’s what’s cool about Roepke: He shared the opinion of the Marxists that workers should have access to means of production and he agreed that what they called “wage slavery” was bad for society, but he disagreed as to why and what the solution should be. To sum up, he argued that the dependency of the working class on the bosses undermined the virtues (e.g., individual responsibility) he deemed foundational for a free society. In order to foster those virtues (and thus remain a free society), the state must take an active role in trying to give back to workers some degree of self-sufficiency. Otherwise, he predicted, the market economy would eventually lapse into some sort of socialism or welfarism, with all the attendant losses of political liberty that the loss of economic liberty brings in its wake. In short, said Roepke, if you want freedom, you have to find a way for workers to stand on their own two feet again.

I went on to argue that one way of applying Roepke’s insight is through the enactment of government policies that encourage homeownership. I still believe that to be the case, but I’d like to add this, too: Government should encourage the self-sufficiency of workers by adopting anti-inflationary measures.

I’ll make this short: In his book A Humane Economy, Roepke argues at length that one of inflation’s chief evils is that it undermines saving, and therefore undermines self-sufficiency and the market economy, as well. How? Saving helps facilitate widespread property ownership; it has the effect of preventing concentration of economic power in the hands of a particular group, like the state or Big Business, and thereby preserving economic freedom. By punishing saving, however, inflation encourages people to spend money now rather than accumulate money for things like caring for oneself in old age and starting up/investing in a small business. Discouraging the former puts more economic power in the hands of the state; discouraging the latter puts more economic power either in the hands of Big Business or government–or both–depending on the circumstances. Regardless, inflation puts the hurt on the market economy, and therefore on freedom.

Toward the end of his argument, Roepke observes, “…[T]he chronic inflation of our age is [ultimately] a moral and social problem.” The question is, do we have the moral backbone necessary to deal with that problem?

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