Economic Hedonism and the Federal Reserve

I shared this meme, and a lot of people didn't seem to grasp the problem.

Part of the problem is that the dollar is a unit of measure, like the pound or the gallon.  If the size of a pound or gallon changed over time, it would make economic calculation difficult, it would render contracts virtually impossible.  Everything would be a moving target.

This is especially true of savings.  If you were trying to put away, say, $500,000 for retirement, but if at the end of your work life, that $500,000 that you saved is actually only worth $50,000 - that's going to make saving for the future next to impossible.  This is why a lot of people bought pre-arranged funerals, so that their children and grandchildren wouldn't have to bear the burden.  But what actually happens is that a pre-paid funeral actually costs thousands of dollars - because of this very intentional devaluation of the dollar at the hands of the Federal Reserve.

Moreover, if you have the option to sock away a thousand bucks, and at the end of five years, you're going to see a profit of maybe fifty bucks, why tie that money up for all that time?  Why not use it as a down payment for a low-interest purchase of a new car?  The Federal Reserve (which was created in 1913) incentivizes debt and creates a disincentive to savings.

Governments also love this because they can crank up the printing presses to pay for ever-increasing entitlements and endless wars.  There is no need for fiscal discipline.  Inflation is a regressive and yet hidden tax that loosens all restraint on government spending - until, of course, it it too late, as with Weimar Germany, Zimbabwe, or Venezuela.

Here is a chart showing the relative value of the U.S. dollar since 1790:

A helpful documentary about how this all works can be found here:



Jeff Deist, president of the Ludwig von Mises Institute (the Internet's leading source of free books, courses, videos, and other educational material about free market economics) spoke of the Fed's policies as "Economic Hedonism."  See also this issue of "The Austrian" for more.

Hedonism is a philosophy in which the pursuit of pleasure is the highest good and one's goal in life.  This leads to a short time preference in pursuing immediate consumption rather than planning for the future.  "Economic Hedonism" applies this idea to the economic policy of the Federal Reserve.

I got to talk with Jeff on the Jay Taylor podcast about this topic back in 2016.