The Causes of Inflation and a Commodity-Based Currency

Enlarge Image Image Gallery The Constant and the Globe are two experimental forms of currency that hold a steady worth in terms of physical commodities. PHOTO: MOTHER EARTH NEWS

Dr. Ralph Borsodi is chiefly famous for his successful experiments in self-sufficient living. There's another side to the man, however, that is of increasing importance in this time of runaway prices: his long-term interest in inflation, its causes and cures.

To be downright blunt about it, Borsodi does not believe that a steadily shrinking dollar (or yen or mark or franc or whatever) is quite the "accident" that politicians usually make it out to be. Quite the contrary. In his view, governments cynically and stupidly debase the purchasing power of their currencies on purpose by printing too much paper money. Why? Because modern politicians and the economists who advise them are—in the main—rather weak-willed animals who lack either the power or the fortitude to run a country on a strictly pay-as-we-go basis.

"It wasn't always this way," Borsodi points out. "During most of the last century, the majority of economists preferred gold and silver or currencies that were solidly backed — unit for unit — by such real wealth. The prevailing doctrine among those economists was that the worst possible kind of money was 'printing press' money . . . currency backed by nothing except the word of the government which issued it. They called this fiat money. They didn't have much regard for it.

"All right. Along came John Maynard Keynes. He was a very influential economist in England from about 1915 to 1946 and he invented the idea that we can insure prosperity by 'controlled inflation'.

"Keynes' theory, you see, is that a government can steadily expand a country's economy, even during periods of what would otherwise be a recession or depression, by pumping a little 'extra' money — a little printing press currency — into circulation.

"Now Keynes knew that this would dilute the purchasing power of every unit of money already in circulation. If you have more units of money trying to buy the same amount of goods and services, you know, prices inevitably go up. You have inflation.

"Keynes was willing to accept this debasement of currency, however, because he thought that a government could inflate its currency just a little bit and just once. Then, as the Good Times began to roll in that country once more, the government could stop pumping the extra units of money into the nation's economy.

"Well that was a nice thought, but politicians don't seem to work that way. Planned inflation is just like planned drug taking. It doesn't work. You always need a bigger 'fix' the next time around. Politicians have never stopped inflating a country's currency once they've begun. Quite the contrary. They just keep on giving a nation's money supply a bigger and bigger shot in the arm until the whole situation runs away with itself. And that's what's happening on a global scale right now."