Family outing for central banks; glow of inflation warm, but flies gather

Notice the tiny USA within the zero on a U.S. dollar bill, also known as the Federal Reserve Note. See my footnotes for photo credit.

Major central banks are working in concert to debase the value of their paper currencies, better hiding the evil effects of inflation. The Fed and the European Central Bank, are fresh on a course of inflation. Of course inflation is not the word given for the ruse, but economic stimulus or “easing of monetary policy” that “bolster their economies,” as the Wall Street Journal puts it. Inflation is dubbed merely a consequence — one perhaps to be avoided. Inflation is intended to be understood as the result of monetary expansion — namely, rising prices. But inflation is the policy, not just a consequence. It is both. Inflation is inflation of the money supply.

The problem? Massive injections of new credit in any economy debase the buying power of the monetary unit, whether it is francs, euros or dollars. Inflation in all these bank-run economies — whether Japan’s or the eurozone’s — is possible only because modern money is an empty symbol, with reference to nothing at all. This phenomenon of emptiness is worth thinking about.

Modern money is not a thing. It is nothing — no thing. It does not have length or breadth or width or substance. Therefore, it cannot be measured; and the term used to measure money when it was silver and gold, namely, “dollar,“ is meaningless today. We referred to that in my last post. What I would like to do now is to acquaint you with some of the consequences of that fact. It is perhaps easiest done by example.

An old man is talking to his grandson, who has applied for a job. If hired, the young man’s salary will be $25,000 per annum, with periodic increases promised. The grandfather shakes his head at this news.

“Why, in my whole working lifetime, I never earned more than $20,000 per year, and then only after many years of service,” he said. “You’re a lucky fellow to start off so highly paid.” The young man nods in agreement.

I disagree. The two gentlemen are confused, and their confusion results from their unquestioning acceptance of the deceptive word “dollar.” They are confusing a silver coin composed of 90% pure silver, weighing 412.5 grains, with a slip of paper two-and-a half inches by six inches, and weighing about a gram.

Both objects are labeled “dollar.” When the old gentleman last worked, over twenty years ago, the twenty thousand dollars which he earned were dollars of silver. He didn’t receive the actual coins each payday, but the paper currency he received entitled him to the coins. And those 20,000 coins had a purchasing power, in terms of today’s currency, of about 200,000 “dollars.” So you can see that the two men are quite mistaken in their belief that the younger man is receiving the higher income. He is receiving a larger number! Indeed, the problem of measuring the younger man’s income is severe, since the “money” is not, as we mentioned above, measurable.

The genuine wealth of earlier generation

You cannot say what “dollar” is in itself, but only what a piece of paper labeled “dollar” will purchase, and of course, that fluctuates constantly. In general, it declines steadily and inexorably with each passing year. It has become so confusing that the government itself publishes a large volume of wage-price indices which enable you to translate your current income into 1970 “dollars,” or 1974 “dollars,” etc., so you can determine whether you’re holding your own or slipping behind. We may be able to gain a clearer perspective of the relative incomes of the two men if we look not at their paychecks, but how they lived.

Grandfather, as we know, never earned more than 20,000 dollars yearly in his life. His grandson earned $25,000 from the start, and peaked at about $65,000. Yet: Grandfather built his own home when he was 30 years old, and had it paid for within 15 years. The home was full brick, with a slate roof, and plaster walls. There was a sidewalk in front, with streetlights, and an alley out back.

Grandson bought a tract house when he was about 30 years of age, and took another 30 years to pay it off. It had a brick veneer front, asphalt shingles, and dry-wall construction. There were no sidewalks or streetlights. Alleys? Those were found in bowling establishments. Grandfather can recall his grandfather reminiscing about the lamplighter, but it never occurred to him how affluent society was then that a man could be paid a living wage to come around each evening and turn on each streetlight, and then come around again at dawn and turn it off.

Today, Grandson lives in darkness in more ways than one.

Grandpa borrowed for the house, and for an occasional automobile. Grandson is perpetually in debt. Grandpa’s company had a modest pension plan for its employees, but other than that Grandpa spent most of his working life without such fringe benefits as medical and dental care. He just took care of that himself.

Grandson had, from the start, such fringe benefits as health coverage, plus much more; even so, he had trouble making ends meet. Grandpa sent only modest sums to Washington in taxes, and spent his life pretty much unconcerned with the activities of the federal government; Grandson sent nearly half of what he made to Washington, whose regulations, laws, and “guidelines“ involved some aspect of his life virtually every day.

In Grandpa’s time, incidentally, the USA was admired, respected, and feared round the world. In Grandson’s time, it was regarded with ill-concealed contempt as a paper tiger. Grandpa put two children through the colleges of their choice. Grandson’s two children obtain student loans, which they are still paying back years later. Grandma never worked outside the home after her marriage. Grandson’s wife worked full time since their marriage except for two full-paid maternity leaves. Grandma had a cleaning lady once a week. Grandson’s children work during summer vacation.

Are we better off than 50 years ago?

Now which family enjoyed the higher standard of living? It is true that Grandpa and his family did not have the technological wonders of the later age; it is equally true that they didn’t miss them. On the other hand, the older couple enjoyed an unhurried, tranquil existence relatively free from debt, while the younger scrambled throughout life to meet payments, despite the two paychecks each week. Yet, to the end of their lives, each man felt that the Grandson enjoyed the higher standard of living solely because the numbers written on his paycheck were so much larger than those written on Grandpa’s!

Their confusion extended to prices as well. Both assumed that if an article cost $1.00 in 1960, and $1.00 in 1980, that its price had remained the same. Yet, in 1960 that number 1.00 on a price tag referred to about 0.78 ounces of silver. To what did it refer in 1980? To no thing at all. To compare prices, the substance exchanged for the goods must be the same, and denominated in the same units; anything else is comparing apples and oranges. It is worse: it is comparing apples with pieces of paper marked “oranges.”

But neither man ever became aware of the rather obvious fact that you cannot make comparisons of price without a monetary standard by which to measure. In this they may be forgiven, for the nation as a whole never came to that simple realization, but continued to talk , as it still does, of rising prices, when, in fact, there is no standard by which prices today may be compared with prices of yesterday.

When Grandson was earning nearly $50,000 per year, he greatly impressed his grandfather by overextending himself to buy a Cadillac for $15.000. “Yes sir,“ he said, “this car cost me nearly one third of my salary, but it is worth it, don’t you think?“ Grandfather agreed. “It sure is a pretty car,“ he said. “I never paid more than $4,000 for a car in my life. You’re a lucky boy.“ A lucky boy! Grandpa paid $4,000 in silver for his car, which, in terms of the currency used by his grandson, would buy two Cadillacs and a Honda! To put it another way, the Cadillac cost 1,500 of the units used by Grandpa to buy his car.

Measured by the same criterion, therefore (and is there any other way to measure?) the older man’s car was the more expensive by far. (It was also larger and heavier.) Yet Grandpa bought this car with 20 percent of his yearly earnings, while his grandson spent nearly 33 percent of his earning to buy a cheaper car. And both men think the younger man fortunate! Both would regard you with absolute incredulity were you to suggest to them that the younger man is working as hard or harder than his grandfather, to buy cheaper goods.


It is agreed: money talks, but what modern money says it a lie. It says that large numbers on checks today constitute more money than the smaller numbers of a few decades ago, which has not been true since money ceased to be a thing.


Dr. Paul Hein, a retired ophthalmologist who lives in Ballwin, Mo., has always had the keenest eye for the misdoings of our betters on a fundamental point of economics. That is, their printing of unbacked paper notes that pretend to be lawful, valuable dollars and which promise nothing except the ruin of the federal republic. Dr. Hein is the author of a favorite book about economics, All Work and No Pay; Life Saving Lessons in Modern Money (1986), from which this essay is adapted, and was president of the Monetary Realist Society.  He is married and father of four children.

Click here for some admiring views of the Federal Reserve Note, such as the one used with this text. Image credit: Allan, NYShutterbug, a critic of paper money whose photos, including some closeups of Federal Reserve paper, are at Flickr.