Salvation through Inflation (Gary North)

North, Gary. Salvation through Inflation.  Institute for Christian Economics.

This book has an autobiographical element for me.  While I cut my teeth as a student of the Austrian school–and am today a free market proponent–I did have a “fling” with Social Credit, though I didn’t call it that at the time.  Many of us, seeing some Enlightenment presuppositions with what we called “capitalism,” and knowing that Marxism and State Socialism were off limits, found in movements like Social Credit and Guild Socialism something of an alternative.  It can’t work, though. It can’t account for pricing. It’s also theft.

Image result for salvation through inflation

There might be another attraction to this movement.  I think some in the Alt Right will go to it. The Alt Right, like Major Douglas, is Darwinian and Nietzschean.  North responds that while there are legitimate concerns to global banking schemes and “The Elite,” any such plan of action cannot come at the expense of biblical, worldview-level analysis.

Social Credit: the claim that capitalism does not “create sufficient bank credit that allows consumers to buy the entire output of industry” (North xv). The State replaces the bankers. As North nicely summarizes, it is a conservative movement that relies on a left-wing critique of capitalism (2).  It’s goal is for the state to create fiat money so that the economy won’t be underconsumed.

Basic tenets of social credit:

* Nature is inherently bountiful
* Human institutions are the cause of scarcity (Social Credit, 77-79).
* The community creates credit (North 59).
* No distinction between public and private property (Douglas, Social Credit, 205).
* You can’t buy or sell real estate (206).
* Falling prices are bad for the economy (Douglas, The Monopoly of Credit, 28). The money supply is never sufficient to clear the market.

Scarcity and Wealth

Biblical view of wealth: Scarcity is an example of negative sanctions in history (Genesis 3:17-19).  Scarcity is defined as “At zero price there is greater demand for something than there is available supply to meet all the demand” (North 45).  Economic growth, accordingly, is when we increase the number of our options.

Biblical view of money: surprisingly, the bible doesn’t mandate that silver and gold be the only kind of money.  It just acknowledges them as valuable. And scarce. And durable and portable and divisible. Nevertheless, the Bible condemns debased metals (Isaiah 1.22).

Debasing money is counterfeiting it, plain and simple.  God condemns this (since it is deception). If it is easy to counterfeit gold, how much more so paper and credit?  You see where this argument is going, don’t you? Social Credit relies at heart on a system of counterfeiting. Counterfeiting then inflates the prices.

Interest is related to time.  One of the problems with anti-interest policies is that they try to escape the reality of time.  That is Gnosticism. Interest doesn’t have to be nefarious. Indeed, it’s unavoidable. North notes that paying is simply paying “an extra quantity of future goods to gain access to the lender’s supply of present goods” (North 179).

Problems with Social Credit:

+ Profit and loss are sanctions that guide production.  This is inevitable since men have imperfect knowledge about the future (Mises, Human Action, 291).

+ If the government issues paper money on the basis of this statistical number, the new money will” raise prices. When prices rise, the value of the “community’s” capital rises (North 63).

+ Douglas’s injunction against falling prices is refuted by the computer revolution.

+ Douglas thinks money disappears (“a week after”) but it doesn’t.  It either remains with the consumer in his hand, under his mattress, or in the form of credit. I guess it could disappear if the Joker burns it all, like in The Dark Knight Rises.

+ It is possible to cut prices below the costs of production and increase profits, which is what Henry Ford did. If it leads to more output, then it works.

+ How do you explain the historic productivity of capitalism precisely when Social Credit problems have never been adopted?
+ Tito’s Yugoslavia adopted something similar in the sense of work tickets.  While it functioned better than the USSR, it had the opposite effect of Douglas’s proposals: the time needed to work multiplied exponentially.

+ The main problem is the most obvious one: Social Credit wants to replace Bankers’ control over credit with the State’s control.  In other words, Congress. Yet both Republicans and Democrats hate Congress.

+ Per Douglas’s A + B theorem, the money paid to B (organizations) is always paid to peopled organizations. He seemed to think they were paid to empty organizations.  This means, pace Douglas, that A can buy back the product. North destroys his argument in one sentence: every unit of money is owned by someone at all times, unless someone has inadvertently lost it (253).


Mises on the Industrial Revolution

From Human Action.  This is Mises’s analysis. pp. 614-615.

Such are the ideas permeating most of the historical studies dealing with the evolution of modern industrialism. The authors begin by sketching an idyllic image of conditions as they prevailed on the eve of the “Industrial Revolution.” At that time, they tell us, things were, by and large, satisfactory. The peasants were happy. So also were the industrial workers under the domestic system. They worked in their own cottages and enjoyed a certain economic independence since they owned a garden plot and their tools. But then “the Industrial Revolution fell like a war or a plague” on these people.14 The factory system reduced the free worker to virtual slavery; it lowered his standard of living to the level of bare subsistence; in cramming women and children into the mills it destroyed
family life and sapped the very foundations of society, morality, and public health. A small minority of ruthless exploiters had cleverly succeeded in imposing their yoke upon the immense majority.

The truth is that economic conditions were highly unsatisfactory on the eve of the Industrial Revolution. The traditional social system was not elastic enough to provide for the needs of a rapidly increasing population. Neither farming nor the guilds had any use for the additional hands. Business was imbued with the inherited spirit of privilege and exclusive monopoly; its institutional foundations were licenses and the grant of a patent of monopoly; its philosophy was restriction and the prohibition of competition both domestic and foreign. The number of people for whom there was no room left in the rigid system of paternalism and government tutelage of business grew rapidly. They werc virtually outcasts. The apathetic majority of these wretched people lived from the crumbs that fell from the tables of the established castes. In the harvest season they earned a trifle by occasional help on farms; for the rest they depended upon private
charity and communal poor relief. Thousands of the most vigorous youths of these strata were pressed into the service of the Royal Army and Navy; many of them were killed or maimed in action; many more perished ingloriously from the hardships of the barbarous discipline, from tropical diseases, or from syphilis.15 Other thousands, the boldest and most ruthless of their class, infested the country as vagabonds, beggars, tramps, robbers,
and prostitutes. The authorities did not know of any means to cope with these individuals other than the poorhouse and the workhouse. The support the government gave to the popular resentment against the introduction of new inventions and labor-saving devices made things quite hopeless.


That the factories couId thrive in spite of all these hindrances was due to two reasons. First there were the teachings of the new social philosophy expounded by the economists. They demolished the prestige of Mercantilism, paternalism, and restrictionism. They exploded the superstitious belief that labor-saving devices and processes cause unemployment and reduce all people to poverty and decay. The laissez-faire economists were the pioneers of the unprecedented technological achievements of the last two hundred years.

Then there was another factor that weakened the opposition to innovations. The factories freed the authorities and the ruling landed aristocracy from an embarrassing problem that had grown too large for them. They provided sustenance for the masses of paupers. They emptied the poor houses, the workhouses, and the prisons. They converted starving beggars into self-supporting breadwinners. The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.

It is deplorable that such conditions existed. But if one wants to blame those responsible, one must not blame the factory owners who-driven by selfishness, of course, and not by “altruismn-did all they could to eradicate the evils. What had caused these evils was the economic order of the precapitalistic era, the order of the “good old days.”

Review: Mises, Human Action

Von Mises, Ludwig.  Human Action.  Scholar’s Edition.

All deductive systems are dangerous if formulated incorrectly. Their appeal lies in their power, and Mises’s system is powerful indeed. Mises advances Praxeology, an economidoctrine emerging from the Classical School when it was realized that human action and not the inherent value of an object is what drove economics (Mises 3). Since our knowledge is limited, our choices will always have an element of uncertainty.

Thus, Mises can advance his main theorem: Human action is purposeful action. And the second is like unto it, “All action aims at a removing or lessening a present uneasiness.” Action does not measure utility or value; it chooses between alternatives. When I choose between unit a and unit b, I am not choosing between the total stock of either, but simply between the marginal values of both a and b. And this leads to the key gain of the Austrian school: the doctrine of marginal utility. The marginal utility of a good decreases as its supply increases. Whenever I get a good, I devote it to the most important end. As I get more goods, I devote them to lesser ends. Obviously, this applies to subjective-use value and not a thing’s perceived objective value. This allows the Austrian School to avoid the hang-ups which plagued all of the Classical Economists from Smith to Ricardo to even Marx.

Not directly, but indirectly related to the above is another axiom: Because man is an acting man, situations change. Prices will change. There cannot be a universal “set price.” Past prices are a guide to future prices.

Another axiom

Mises has several challenging chapters on interest and the Industrial Revolution. He argues that interest is the price men pay for valuing present goods more than future goods. It is a ratio of commodity prices, not a price itself.  Can we get rid of interest?  Mises argues that as long as there is scarcity, there will be human action, and hence, interest (525). Originary interest: the discount of future goods as against present goods (521).

Ricardo’s Law

Society accomplishes more when one group produces more of what it is good at.  If Group A is superior at producing everything, it still benefits from cooperating with an inferior partner. If Time = Money, then outsourcing frees up valuable time for A to produce what is more valuable.  Mises writes, “ If the surgeon can employ his limited working time for the performance of operations for which he is compensated at $50 per hour, it is to his interest to employ a handyman to keep his instruments in good order and to pay him $2 per hour, although this man needs 3 hours to accomplish what the surgeon could do in 1 hour.”


Mises’s Utilitarianism is subject to some devastating defeaters, mainly Betrand Russell’s: the only way to justify an action is in light of its consequences, but the only way to justify whether those consequences are good are in light of the consequences’ consequences, and so on to infinity.

Fortunately, most of his system is salvageable from that.

Review: Mises, Theory and History

While there is much good in this volume, I have some reservations (which I will list in my conclusion). Still, it is very lucid.

Values are subjective, but not relative.  Subject simply means “from the knowing subject.”  Thus Mises can write that “any scientific treatment of the problems of value judgements must take into full account the fact that these judgments are subjective and changing” (von Mises 24).

Mises holds to a utilitarian version of natural law.  By itself it isn’t that bad, but it is utilitarian to the extent that he knows he really can’t give a justification for it.  This is evident in his treatment of justice: “the ultimate yardstick of justice is conduciveness to the preservation of social cooperation….Social utility is the only standard of justice. It is the sole guide to legislation” (36).  Strong words, indeed.

Mises’s section on determinism is misleading.  He is seeking the Christian doctrine of providence and the self-contained God who is the concrete universal, for he wants to deny pure randomness.  Mises wants to uphold determinism but reject materialism (52).

Dismantling Marx

Marx had said that “material, productive forces” is the agent of change in society.  However, as von Mises points out, he never told us what these are (73). How do you get technical knowledge from a material superstructure?  Mises lists three problems with this idea:

1) a technological invention is not merely material; it is the product of a mental process.
2) a mere designing of a technological invention is not sufficient to produce it.
3) the utilization of machines presupposes the social cooperation under the division of labor.

Is Wealth Really Concentrated in the hands of a few?

To a certain extent, maybe. But this ignores the most obvious fact about corporations: the bigger the corporation the more widely its stock shares are distributed (79).


He had an awful section on medieval Christianity.  He tried to engage in exegesis and was clearly out of his league (29-30). Further, this is probably a Mises volume that you could skip and not miss anything. If you are the type who is interested in Mises, then you will probably read *Human Action,* anyway. Or at least *Socialism.* You get the same destruction of Marxism there without the extra material where he fights forgotten early 20th century fellow humanists.