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March
16
2023

The Moral Consequences of Hyper-Inflation Have Come Home to Roost
Sean Ring

Happy Thursday from beautiful Northern Italy!

There are times I wish I was unaware of what’s going on in the world.

Especially since last Sunday.

I won’t lie. The thought of Meghan and her ginger nut Prince becoming paupers lit me up like a Christmas tree.

I was so excited to use this meme. It’s devastating that it’s no longer valid.

It would’ve been so delicious. Ironic, even.

And I lived in England long enough to understand irony.

What happened with respect to SIVB and Signature Bank was idiotic economically. But in a much more important and real sense, it was immoral.

In this Morning Reckoning, I’m putting in print part of one of my favorite speeches by a professor I wish I knew better.

I’m No Priest, But…

Professor Joseph Salerno of the Mises Institute gave a speech years ago about the moral breakdown of society in the face of inflation called “Easy Money, Easy Morals.”

I can’t encourage you enough to listen to the whole thing. It’s only 30 minutes, but if you play it at 2x speed, you’ll get done in 15 and lose none of the value.

Professor Salerno gives a great account of Weimar Germany, which eerily mirrors what America is going through right now. Sure, there’s no hyperinflation yet. But the moral consequences have long been evident.

Professor Salerno said:

“At some point, people lose confidence in the value of the money. The price continues to rise at ever rapid rates, even more quickly than the government can print money up. So even in the middle of this massive inflation, people experienced a shortage of money. They didn’t have enough money as much as they needed to buy goods and services.

It destroyed people’s bank deposits and pensions. If someone had a pre-war pension of 200 marks per month, which was very comfortable, they couldn’t even buy a meal by 1920.

Workers didn’t want to hold money for a week. So they began to demand to get paid three times a week, and then every day, and then three times a day, and had their fiancés and wives at the factory gates to get the new money, rush out to buy things as quickly as possible.

Teachers and professors, who were traditionally paid monthly in Germany quit their jobs, because if you had to wait a month for your income, that income was worth 1,000,000th of what it was worth prior. So they quit their jobs and became taxi drivers and waiters.

Farmers refused to pay you to sell you an egg, even for a whole wheelbarrow full of marks.

Those people that were able to get the new marks as they were printed up by the banks were the ones that benefited. They got it before the prices rose. And they spent it… they bought up hotels, they bought up land. You had so-called joint ventures in Germany, which put together coals, banks, hotels, electricity. These were not very productive and, and in fact, collapsed. They were put together by paper money. On the other hand, this was based on the looting of the savings of the people on pensions who had no access to this new money right away.

The middle class were getting paid every two weeks or every month.

So you had this nouveau riche, these newly rich that began to rush out and, and spend the new money, because they knew it was going to depreciate, on ostentatious examples of conspicuous consumption.

Who were the victims?

The middle class, the small businesses, the pensioners… they were all wiped out.

And what about the effects on moral values?

Obviously, it no longer paid to be thrifty and to save for your future and your child’s future. So, thrift, such an important value in the capitalist economy, went by the board.

People no longer carefully planned their investments. They simply bought anything because they felt that the prices were going up the next day. So people no longer look to the future.

They suddenly became very interested in immediate gratification to get anything and get it now. Productive work was discouraged because most people had left the factories and spent all their time hunting for bargains, trying to get rid of their marks.

Even sexual morals changed. Women’s dowries were wiped out.

Now, you laugh about that, but dowry had a very important function in the old culture.

It was a way of signaling to a prospective suitor that the woman’s family was virtuous, had thrift, they worked hard, had family commitments to one another.

Now, the women became discouraged of ever accumulating dowries in the future and ran off with their boyfriends. And the term boyfriend was not used in polite society in Germany in the 1920s! Prior to the hyperinflation, it was a scandal for an unmarried middle-class girl to have a “boyfriend.”

Everybody sought after this ostentation, this luxury. And that replaced the goal of having a good and solid family name… Of being sober in your investments.

And finally, the people who were looked up to are the unscrupulous gamblers and profiteers who now got to the top of the social structure, where the old families and the old wealthy who worked hard and were good examples to the rest of the populace, were now at the bottom.

Now, there is a direct link between inflation and the breakdown of morality, an even more direct link. Let me just explain it in the following way. By bringing about a thoroughgoing social revolution, it really does destroy the middle class and the productive rich.

But by destroying money itself, it destroys everyone’s ability to plan for the future and leaves them no recourse, but to seek immediate gratification. Moreover, whether we like it or not, men and women live in a world where they cannot live or flourish physically and spiritually without property.

But remember, property is not merely a collection of material things. It refers to those things that are judged valuable in serving human wants and desires. But in the modern world, you can never know what the value of property is in a specialized economy of mass production unless you know its money value. So in a real sense, valuable property is an extension and a definition of an individual’s very personality.”

Oh, The Realization

I know what you were doing while you read that speech.

In your head, you thought about your dwindling purchasing power. And that’s despite having more money in your bank account than you may have ever had before.

You now see why smart people have abandoned noble causes (like teaching) for worthless, but higher paying roles like “influencer.”

You visualized today’s nouveau riche, with their Birkin bags and Cartier bracelets.

Fear of Missing Out (FOMO) is now a hasty, but understandable way of investing in cryptocurrencies and NFTs.

Broke, but shapely young women getting their funbags out on Only Fans suddenly makes perfect economic sense. And those who merely show a bit of skin on Instagram are saints by comparison.

And worst of all, you know exactly who those unscrupulous gamblers and profiteers are. They’re people you formerly admired and respected. Venture capitalists, investment bankers, corporate lawyers, former House speakers, and now, entrepreneurs with the right bank accounts.

But don’t take my word, or even the good professor’s. Have a look at this:

This era’s story – like Weimar Germany’s – is all about inflation and the way it distorts incentives.

Before you go, let me disabuse you of one notion. You can’t save everyone. We’re far past that point.

But you can save yourself, as my colleagues and I have written many times before.

Concentrate on that.

Head to the Daily Reckoning to catch up on the ways to get ahead of what’s coming.

And if you didn’t read the Rude this morning, my good friend and colleague Byron King talks to you about real deposit insurance: the rock-solid kind.

He’ll show you why “pounds in the ground” are far superior to “Biden Bucks.”

Until next week, take care.

Let me know what you think of these recent events and how they’re affecting you and your faith in the system by emailing me here, I’d love to hear your thoughts.

 
My story starts in Hasbrouck Heights, New Jersey, where I grew up. My childhood was idyllic. I never thought I'd leave the Heights. Well, maybe just for college. When I was searching for colleges, I only looked within a hundred miles or so. I wound up going to Villanova. I stayed there for four years and earned — their word, not mine — a finance degree with a minor in political science. After that, I went to work on Wall Street. I had a menial job at Paine Webber to start, but then I got my first real Wall Street job at Lehman Bros. (before its collapse, of course). I worked there in Global Corporate Equity Derivatives as an accountant, believe it or not. Honestly, I hated the job back then. I didn't know how spreadsheets worked — yes, even with a finance degree. (Now I'm a Microsoft Excel nut. I think it’s one of the most extraordinary things ever invented.) After that, I moved to Credit Suisse, who sent me to London — the center of global operations for banking. I was young. Not only did I love the city for being a Candyland for alcoholics, but I also needed the international experience to cancel out my mediocre grade point average to get into a top 25 U.S. business school. Somehow, though, I stayed for a decade, until I discovered London Business School. There I earned a master’s (HA!) degree in finance. My next job was as a futures broker, which I utterly loathed. When I had enough, I took a year off — pub crawling around London and pissing away my bonus money. Then I figured out that I needed a new job. So I went to work for a company called 7city Learning, where all of the best finance trainers were working. I had no idea about any of that, but imagine walking into the 1927 Yankees locker room and being taught how to hit. I spent my time teaching all the traders exams, the graduate programs of the various big banks and then the CFA Level 1 review courses. Yes, that's the only level I've passed. I hate that exam. I never really wanted to run money anyway. In 2009, my boss asked me to move to Singapore to help build the business in Asia. Then I went to work for another financial training company where all of my friends had migrated. Around the time I was getting bored of Singapore, my old bank asked me to work at talent development for them in Hong Kong. Nearly three years later, I moved to the Philippines, where I started an EdTech startup called Finlingo. Along the way, I’ve racked up a ton of qualifications — I am a CAIA, FRM and CMT, amongst a few other things — but they don't mean anything. All that matters are my experience, my connections and my takes on things. So every day I'm going to do my snarky best to inform and entertain you.

 

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