We’ve been talking all week about inflation and its devastating impact on civil society. It hollows out the middle class and makes long-term business planning nearly impossible.
And it all starts with a lack of understanding around money.
We are all taught to view money as a medium of exchange and a measurement of value. And sure enough, these functions are critical to civil society.
Money is also a communications system. It allows us to put a price on goods and services in the economy. And those prices communicate valuable information to us about the supply of and demand for scarce resources.
For example, when the price of something goes up, that’s a signal that it has become more scarce relative to consumer demands. This prompts entrepreneurs to devise ways to create more supply or alternatives to the good in high demand.
In just the same way, when the price of something goes down, that’s a signal that the item is relatively abundant compared to consumer demand. And this leads firms to produce less of it. That is, until the price rises again.
This communications system allows an economy to coordinate production across time and space. And it does so according to Adam Smith’s old “invisible hand” principle.
This principle says that individuals making their own decisions based on self-interest drives economic growth. The invisible hand guides firms to produce the highest quality goods at reasonable prices.
It’s all about allocating labor and scarce resources to their highest and best use. Doing so creates a strong economy that benefits all of us.
The problem is, inflation distorts this communications system.
Remember, inflation is the act of creating new money from nothing. It is the act of printing currency. This necessarily reduces the purchasing power of all the currency units in circulation.
The result is that prices for everything priced in that currency adjust higher to account for the greater number of currency units in circulation. That’s just basic supply and demand economics.
But this muddies the water.
Now it’s impossible to determine whether an item rising in price is a scarcity signal or inflation at work. And this leads to what economists call “malinvestment”.
Malinvestment refers to bad investments based on distorted information. It occurs when we allocate labor and resources to the wrong places. That puts a drain on the economy and leads to unemployment.
The bottom line is that inflation wrecks everything. Our grocery bill going up is just one small piece of it.
The only solution to this problem is sound money—money that cannot be created from nothing.
Of course, those who control the printing pressed don’t want sound money. As we saw on Tuesday, they have been using inflation to redirect all economic productivity gains to themselves for fifty years now.
So the only thing we can do is implement sound money at the individual level.
We do this by building a robust portfolio of real assets whose value cannot be inflated away. That’s how we bulletproof our money.
Are you ready to implement the sound money solution? Learn how to do so right here.
-Joe Withrow