The price of a McDonald’s hamburger in the United States has inflated 3.75 percent annually over the last seventy years. McDonald’s has grown from a tiny hamburger stand in Des Plaines, Illinois, to the second largest fast-food chain on earth. Scale economies alone (never mind process and productivity improvements) should’ve allowed the price of a burger to decline materially over this period.
Why didn’t it? What forces and institutions have conspired to inflate the cost of a simple meal by more than thirteen times over two generations?
Many Mises Wire readers know the answer, but few Americans are economically astute enough to understand or describe what Vladimir Lenin called the “surest means of overturning the existing basis of society.”
Simply put, inflation is a giant “skim” – perpetrated in a symbiosis of money creation by bankers and government-affiliated central bank bureaucrats, the two institutions with the power to create money from nothing. Inflation creates a nice, cushy existence for each group. And the bankers and bureaucrats always get their money.
If steady price deflation were operative – as is the case in a properly functioning consumer economy, where productivity improvements flow into lower consumer prices – the world would be quite different today and far more difficult for bankers and bureaucrats.
With steadily falling prices, bankers must do proper credit analysis. They must set aside ample reserves and generally run their institutions more conservatively. Credit analysis is far more difficult in deflation as borrowers must continuously sell more goods to service their loans rather than relying on boosting prices. Secured loans become problematic as pledged assets devalue. Banking generally becomes a lot more work – and more risky. The period of 1865 to 1910 in the United States was a perfect example of this sort of environment. Record bank failures and enormous financial volatility accompanied steady deflation and one of the greatest periods of economic prosperity and innovation in our nation’s history.
In short, deflation creates risks for banks, so banks conspire with the government to create enough money so they don’t have to deal with it. The “balls to the wall” and “heads I win, tails you lose” practices we’ve become familiar with in banking today are both allowed and inspired by the permanent inflationary regime.
The other major inflation conspirator (and greatest beneficiary) is government. Think of inflation as oxygen for politicians and carbon monoxide as a public vote cast to raise taxes. Steady (2 percent, say?) inflation creates a reliable ratcheting effect on every taxpayer in the land, and a nice, smooth, foamed runway for bureaucrats. And should our benevolent leaders decide the inflation/tax runway isn’t wide enough or smooth enough? They simply borrow the difference (i.e., the deficit) and inflate that away too!
Inflation created by central banks allows government to ALWAYS have the money it wants – and be first in line to get it. If deflation were operative – as would be the case in a properly functioning economy where productivity improvements flow into lower prices – government would have to explicitly tax instead of relying on inflation to drive revenue and devalue debt. Politicians’ careers would be much, much shorter.
In summary, there’s a reason deflation rarely (if ever) happens. Inflation makes bankers’ and bureaucrats’ lives easier and keeps them in power. The cost of a simple hamburger would be far lower without ever expansive government and the willful destruction of our money. But it will never happen as long as bankers and bureaucrats work in perfect symbiosis to execute a massive skim on the American people.
Written by Charles A. Smith for the Mises Institute ~ August 16, 2023
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About admin
Please allow me to introduce myself; I am Jeffrey Bennett, President of Kettle Moraine, Ltd., the parent of Sierra Madre Precious Metals.
I have been married for 53 years with two children and four grand-children, a veteran of Viet Nam, student of history (both American and film), and was host for fifteen years of Perspectives on America on the alternative airwaves, covering such subjects as, health and wellness, news, political satire, education and editorial commentary on current events through the teaching of history, and Protecting Your Wealth. In early 2018, I took a several month hiatus to complete some family business but returned to airwaves April 17, 2018).
At the age of ten, I sat in a bank-vault in the Citizens Bank of Mukwanago, Wisconsin with my grandfather going through bags of old American Peace dollars, hand-selecting each coin as dated rolls of 20 coins were carefully put together and rolled. Learning of the history of these beautiful pieces of Americana, I asked my grand-father, "Why are we doing this?" to which he replied, "Because someday they are going to do the same thing with the silver in our money that, that (S.O.B.) Roosevelt did with gold in 1933." It took only six-years for his prediction to come to pass at the hands of a disciple of Roosevelt's... and what will a Federal Reserve 'dollar' purchase today - and what will that old 90% Silver Peace Dollar purchase?
Although at the age of ten, there was little understanding of the meaning of it all, over the next half-century I became well-versed on the subject matter. During this summer of my education, I began to purchase silver coins as a collector and some small, international gold coins two years later - not an easy feat in the shadow of the Roosevelt confiscatory policies of 1933. Although those policies remained in effect until the mid-1970's, it was not until 1991 that I found that one could make a living providing precious metals and collectible, historic numismatic coins to a willing and concerned clientele.
It was also during that year, that I began a relationship with one of the first Trust companies to give the public access to gold and silver as part of an Individual Retirement Account (IRA) - and Kettle Moraine, Ltd., founded in 1995, but have ceased providing service due the the intense change-over of the provider.
In November 2011, after a 15 month broadcast on another network, I returned to the airwaves with my then revamped program, Life, Liberty & All That Jazz, and for over 28 years, I have been proud to serve the family of listeners of my numerous broadcast programs for physically-held precious metals for investors and collectors alike. On March 23, 2020 I launched my brand new - appropriately named program, The Edge of Darkness on the Republic Broadcasting Network, and thus continue to remain available to our long time clients and their families. Ah yes - find out what "inter-generational" wealth provision has done for our clients over the past three decades.
Don't buy the sizzle of that steak until you understand the cost! In other words, don't buy the bull being dispensed by the 'rare coin' pitchmen until you understand the full story. We, at Sierra Madre Precious Metals, will be proud to serve your needs.
