Hard Money: A Gift to the 1%

Investment–whether it is putting wealth into a business or your own education in hopes of earning more–is risky business. It ties up your money for years, and you’re never quite sure you’ll get it back, even in the best of times. Now, however, it’s not just risky, but also a losing proposition. Like a game of roulette, not only does investment right now mean risk, but also means that for most investements, odds are you’ll lose. This is unfortunate, because for most of us, the bulk of our assets are human capital, our hard-won skills, talent, and the future earnings they will produce. Unlike the wealth that one might put into a business, there is no way to move this capital into cash. The hundreds of thousands of dollars invested on my education are permanently invested, and while I can rent them out for a salary, I cannot auction them off to raise cash.

Unlike you or I, the 1% has their assets largely in wealth that, unlike your or my human capital, they can choose to sell. Unlike the value of our human capital, their dollars sit safe in a vault losing only 2% a year to inflation, even when the worth of real investements continue to decline.

For the unemployed each year of missed earnings is a year worth of earnings that they will never get back, and skills and factories alike grow rusty when they sit idle. As long as the economy is depressed and dollars hold their value, those who can keep their wealth in cash will, while the rest of us are stuck playing the casino game that is investment in a down economy.

By giving the wealthiest safe harbor out of the dangerous world of investment when the economy needs the money most, it makes the business cycle worse, and further it concentrates the risk on those who can least afford to bear it. “Hard Money” is what we call a policy of keeping the value of currency high (i.e., low inflation), and it is fundamentally a policy to give safe harbor to those who are rich enough that their main assets can be sold and turned into cash.

And this, I believe, is the root of hard-money hawkishness and gold-buggery, going back to time immemorial. The refusal to break the gold standard in the late 19th century, a refusal to goose inflation above zero percent in 1990’s era Japan, or the stubborn adherence to a 2% inflation goal in the Eurozone and here, is a disaster for the 99%, but for the 1% it is a boon. While the economy slides, their net worth holds steady. Rather than brave the short-run storms that punish the real economy, the very rich can take safe harbor in cash, secure that their ship will be safe, and the economic seas will eventually calm. Hard money is not a virtuous blessing on a nation but instead a safe harbor for the richest of the world, and in allowing the wealthiest to find safe harbor for their capital, it exposes the rest of us to ever more tumultuous seas.

Little surprise then, that tumultuous times come after a span of inequality. In times of greater inequality, the wealthiest have lobbied successfully for hard money policies. This was the “Cross of Gold” that William Jennings Bryan railed agianst, and this pattern could well explain the corrolation that Krugman describes in this presentation (pdf) pointing out the historical linkage.