Paul Krugman is at it again over the inflation cult. Frankly, his complaint has changed so little that it starts to bore me these days. The essence of the complain is about a group of people either incapable of or unwilling to understand economics, along with the fact that low interest rate does not always translates into hyper-inflation. Mr. Krugman provides 2 explanations for this unwillingness (stupidity explains for itself). Usually, the explanation is about self-interest: when inflation harms your asset, it is your greatest enemy and always lurking around the corner. This time, it's about the close-mindedness of the conservative people.
I totally agree with Mr. Krugman regarding the existence of such inflation-mongers, but I frankly cannot agree with him on the explanations. You see, I happen to know a few people who are quite nuts over this issue. Most of you must know at least a few of them: the libertarians, especially Ron Paul supporters. In fact, these people don't just want tighter monetary policies. They want gold-standard! However, contrary to Mr. Krugman's hypothesis, they belong to a radically different demography than the obvious ones. Most of them are young, well-educated, socially open-minded. Every investment book advises them to put all of their 401K in stocks; if they follow this advice, damaging growth in favor of low inflation hinders their interest. Being young and well-educated, they are among the least racially and traditionally discriminating group living (in fact, they identify socially with liberals). This begs for a different explanation for why they dislike loose monetary policies and paper money.
Here is my hypothesis: conservative in generally distrust abstract ideas. In fact, this hypothesis explains more than just monetary preference. It also explains much of their political attitude and choices in general. However, for now, let's focus on the money.
An ounce of gold consists of (by definition) an ounce of gold, and it holds value by the virtue of the desirability of its material. This way, there is an intrinsic value to gold and silver, and this value gives a physical, a real meaning to the exchange value that we assign to that commodity. When you hold an ounce of gold, you physically touch and weight the value to pay for some other goods or services.
In contrast, a paper note of money possesses no such intrinsic value. When you hold an one-dollar note, all you hold is a piece of (usually crumbled) paper with some ink laid on top. If you take this piece of paper to, says, 300 years ago, its worth dropped to only a few cents (which, by the way, at least have some physical stuff to it). A dollar note is only worth a dollar because the US government says so. All of its value comes from the collective imagination of people.
The gap between the physical (aka intrinsic) value and the stated, exchange value causes distress in inflation mongers and gold-standard wishers. For them, the abstract, almost imaginative nature of this gap must be resolved eventually, like a debt that must be paid of. At resolving time, the exchange, imaginative value will collapse back down to the physical, intrinsic value.
Now, another analogy to debt should be mentioned here. When you delay paying your debts, the debts grow greater. Similarly, when the resolving of the value gap is delayed, the delay will magnify the scale of the eventual collapse. Think about a credit card bill. When you don't pay it in full (or just pay the minimum amount), the bank will still lend you money. However, eventually, the bill will grow to untenable amount and destroy your finance. Similarly, just because the gap does not collapse today (in form of, says, hyper-inflation), or tomorrow, or two years from now, or 5 years from now, the gap does not disappear or go away. It will only quietly accumulate more and more destructive power until Judgement Day comes.
When you look at money this way, the lack of inflation means nothing. No, the inflation rate has not blow up, just like your bank has not confiscated your house. But no, that does not mean your bill has disappear. It just means the bill just increased. Thus, as a concerned person, an inflation monger (or gold-standard supporter) must continue to warn others of the coming of Judgement Day, when the imaginary value collapses, and our society with it.
Now, have fun presenting evidences to such people.
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