Unit 7 Lecture Notes

But the role of unsound money in nutritional deficiency does not stop with dietary advice. Perhaps more significantly, it extends to the realm of government interference in the food market. This process particularly intensified after 1971, and has arguably been instrumental to the degradation of the nutritional content of food for Americans.

After President Nixon closed the gold exchange window in 1971, which removed the last link between the US dollar and gold, there was no longer a hard constraint on the expansion of the money supply for the US government and Federal Reserve System. Runaway inflation ensued, and, as is the case with every inflationist government in history, it was blamed on a multitude of factors (the Arab oil embargo, evil speculators on the international capital markets, etc) none of which was the inflationary monetary policy of the government itself).

As inflationary monetary policy caused a rise in food prices, President Nixon appointed Earl Butz, an agronomist who sat on the boards of various agribusiness companies, as secretary of the US Department of Agriculture. Butz's stated goal was to bring food prices down, and his methods were brutally direct: "get big or get out" he told farmers, as low-interest rates flooded farmers with capital to intensify their productivity. This was a boon to large-scale producers, and the death-knell for small farmers. It killed small-scale agriculture and forced small farmers to sell their plots to large corporations, consolidating the growth of the bezzle in the food industry. While the increased production did lead to lower prices, they came at the expense of the nutritional content of the foods and the quality of the soil. The large application of industrial machinery can bring down the price of industrial foods, and that was what Butz sought.

Mass production leads to an increase in the size and quantity of the food, but not in the nutrients; It also leads to the depletion of the soil, requiring ever-larger quantities of fertilizer to replenish it. It is possible to keep increasing the size of food and its sugar content, but it's much harder to increase its nutrient content. For instance, the mass production of corn leads to extremely cheap prices for High Fructose Corn Syrup (HFCS), a toxic and highly addictive form of sugar. Thanks to its abundance, high fructose corn syrup is now included in the vast majority of industrial foods in the US. In order to compensate for the loss of nutrients, food producers are introducing ever-larger quantities of HFCS into the food supply. This is highly addictive and very destructive, and HFCS is severely implicated in the crisis of malnutrition and obesity besetting the US.

This move towards substituting industrial sludge for food has helped the US government understate and downplay the extent of the destruction in the value of the US dollar in statistical accounts like the Consumer Price Index (CPI). By simply subsidizing the production of the cheapest foods and recommending them to Americans as the optimal components of their diet the extent of price rises, and currency debasement is reduced. A closer look at the historical trend of the US government's suggested dietary guidelines since the 1970s shows a continuous decline in the recommendation of meat, and an increase in the recommendations of grains, pulses, and various other nutritionally poor foods that benefit from industrial economies of scale.

Along with the degradation of the quality of foods recommended by the government has come the degradation of the quality of food included in government's measure of inflation, the Consumer Price Index, an invalid mathematical measure which governments nonetheless track meticulously. The CPI pretends to measure and track across time the price of the average basket of consumer goods purchased by the average household. By tracking the price changes of this basket, government statisticians believe they can get a good sense of inflation levels. The only way to agree is to have no understanding of how math works.

The first obvious problem with the CPI is that an "average" household or a representative consumer basket doesn't exist. The arbitrariness in defining the composition of the goods basket erodes the CPI to simply a measure of the goods chosen by the statisticians crunching these numbers, and allows them enormous leeway in tailoring it to produce the results they want. One could counter here that the statisticians do a good enough job of including most popular goods, and that what matters more is how the basket changes in price over time. This is likely to be reflected across all goods, making the selection of goods not that important. The fallacy here is that many goods behave very differently, particularly high-tech goods which are constantly declining in price due to the continuous efficiency gains technology produced by private enterprise. By weighing these goods heavily in the index and reducing the weights of essentials for survival (e.g. highly nutritious food that, despite tech advancements, still cannot be mass produced), the CPI would understate inflation.

Depending on your level of trust in government, you may or may not be surprised to learn that the number crunchers at the Bureau of Labor Statistics have decided to exclude food, housing, and energy costs entirely from their calculation of the CPI. The ostensible reason is that their prices are too volatile, but the reality is that these are the economic assets most closely tied to physical reality, and thus the least likely to experience the same cost reductions through technological advancements. Not only that, but the BLS actually treats improvements in the performance of electronic equipment as reductions in its costs. So, as your laptop's hard drive has been getting larger every year, the BLS does not just calculate the price of the laptop in the consumer basket, but it calculates the cost of storing a byte of data, which has been dropping very quickly for decades as explained by Moore' Law.

And that brings us to a bigger problem with the CPI. Technological advancement and capital accumulation are constantly increasing economic productivity and reducing the real cost of producing most goods and services; This translates to a lower price when measured against a hard money. Thus, even if one accepts that CPI numbers are accurate, they clearly understate the true extent of monetary inflation because they are revised downward by the increases in productivity.

Yet these are but small side problems with the way the CPI is constructed, and trying to resolve them leads us to the fundamental problem with the CPI: it is a completely invalid way of measuring a completely nonexistent metric, since purchasing decisions themselves are a result of prices and will be adjusted to reflect changes in prices. To illustrate the point: imagine you earn $10 a day and spend them all on eating a delicious ribeye steak that gives you all the nutrients you need for the day. In this simple (and, many would argue, optimal) consumer basket of goods, the CPI is $10. Now imagine one day hyperinflation strikes the economy and the price of your ribeye increases to $100 while your daily wage remains $10. What happens to the price of your basket of goods? It cannot rise tenfold because you cannot afford the $100 ribeye. Instead you make do with the chemical shitstorm that is a soy-burger for $10. The CPI, magically, shows zero inflation. Granted, the real world has not witnessed an example this extreme, but the fundamental dynamic remains: the change in the cost of living cannot be reflected in the price of the average basket of goods because the goods comprising that basket are in turn determined by the change in the price. This is how we can understand that prices continue to rise while the CPI registers at the politically-optimal 2-3%/year level. If you are happy to substitute waste product sludge for ribeyes, you will not suffer from inflation!

This is also why there can be no such thing as the "price level" and no way of measuring it. Prices are ephemeral reflections of supply and demand realities at every given point in time. In a free market, as discussed in The Bitcoin Standard, the good that is the hardest to produce and the one with the highest stock-to-flow ratio is chosen on the market as money because it is the least likely to be devalued by overproduction. In such a world, the value of the monetary medium becomes a reflection of the time preference of individuals who decide between holding it for the future or spending it in the present. Since time preference does not vary very quickly in the aggregate, you would expect the real value of money to remain relatively constant, which was what we saw in the era of gold as money. In such a world it's nonsensical to talk about a price level, and that's why no government under the gold standard ever thought of concocting such a ridiculous concept.

In fact, the definition of inflation as a rise in the price level is itself an absurd mistake that modern economics has committed with disastrous consequences. The correct meaning of the word ‘inflate' is to increase the size of something. A balloon or tire is inflated by making it larger. The correct linguistic interpretation for inflation is that it is the increase of the money supply. An inevitable consequence of the increase of the money supply will be a rise in prices, but that cannot be mistaken for the inflation itself. The only meaningful way to measure inflation then is the way that classical and Austrian economists measure it, which is the increase in the money supply. One can identify rises in prices as a consequence of inflation, but measuring inflation by looking at prices themselves is mathematically absurd, linguistically invalid, and conflates the two concepts (money supply and price). Of course, in language, convention and use trump dictionaries and definitions, and that is why the term inflation is practically unusable today, since it means different things to different people. This is why I avoid using the 'I' word entirely and prefer to speak distinctly of price rises and money supply increases.

In conclusion one cannot find a more apt representation of the impact of inflation and unsound money: the paper wealth of Americans is increasing, while the statistics show that their quality of life is going up. In reality however, the quality of their food is degrading because the quantity of nutrients they consume is declining, and their mental and physical health are deteriorating. Instead of nutrients, Americans are subsisting on an ever-increasing quantity of drugs: mainly sugar and high fructose corn syrup. The ever-growing variety and quantity of flavored industrial sludge filling Americans' refrigerators cannot be claimed to be real food, and it is no substitute for it. Americans' increasing obesity is not a sign of affluence, but a symptom of deprivation. The level of spending and income in America may be increasing according to government statistics, but if Americans work longer hours than they ever did and their basic nutrition is still receding, there must be something seriously wrong with the money they are using, both as a store and measure of value. The Faustian bargain of fiat money did not deliver the free lunch its cheerleaders promised, but instead brought on industrial concoctions of soy and high fructose corn syrup, light on nutrients, high on empty calories, and extremely costly to the health and well-being of its poor victims. The ever-increasing cost of medication and healthcare cannot be understood without reference to the deterioration of health, diet, and soil, and the economic and nutritional system that have promoted this calamity.