Inflation and Capitalism

A big conceptual mistake which many smart people have made over the last 260 years is to conflate money with capitalism and capitalism with money, to misperceive that they are two sides of the same coin, joined back-to-back 360 degrees in the round and so conjoined like Siamese twins.

Money and its more generic category of economic dynamism – financial liquidity – are part and parcel not only of capitalism, but of all human socialized economic systems.

Ancient societies had money.  Feudal aristocrats used money and got into debt.  Stalin’s classic communist regime had currency.  None of these systems was capitalist.

Inflation – when money loses its value – is pernicious in its effects on social equality.  Under conditions of inflation, the rich get richer more easily and the middle class and the poor see their purchasing power decline.

But is inflation – the creation of too much money – inherent in capitalism?  No.

Rather, inflation and its opposite – deflation – turns capitalism away from fulfilling its promise to optimize wealth creation for all of a society.

Here is a chart on the declining real value of the U.S. dollar:

In what sense was American capitalism responsible for this?

Real median American household income after taxes fell 8.8% to $64,240 from 2021 to 2022 and the poverty rate after taxes, as measured by the Supplemental Poverty Measure (SPM), increased 59% to 12.4%.

In the U.S., from 2021 through mid-2023, prices have increased more than wages.

Here is a chart on growing inequality between the rich and the poor:

In the U.S., the share of national income going to those who provide labor, not capital, has been declining, exacerbating the effects of inflation on real wealth creation for most Americans.

How Inflation Eats Away at the Promise of Capitalism

Inflation works through money and other forms of liquidity.  As the supply of money/liquidity grows, the value of each unit of money/liquidity is worth less and less.  Simple supply and demand.  If ten dollars are in circulation, each dollar is worth 10% of the total pie.  If one hundred dollars are in circulation, each dollar is worth only 1% of that pie.

Now, under conditions of inflation, the poor and middle classes have limited opportunity to increase their incomes.  Most of what they earn, they spend.  They don’t have enough to save.  As prices rise in money terms – one ear of corn costs more in currency than it did – the poor and the middle classes must reduce consumption.

For the rich, it is different.  As Hemingway once retorted, “They have more money.”

They have enough to spend and to save.  As they save, they benefit from rising interest rates, which usually accompany inflation.  Their savings mostly go into financial markets, where they earn money on money.

The important point is that the private sector and markets do not create currency and other forms of money.  They do pass some of their money around as loans, but they don’t manufacture paper dollars or metal coins.  That is illegal.

While inside the capitalism system of private sector economic activity, thought financial institutions trade in money and liquidity.  The production of money is a government function.  The manipulation of interest rates and loan opportunities in the private sector is also a government function in a modern market economy.

So, where inflation is concerned, government can act at variance with social justice ideals.  The same is true when government policies in contracting the money supply can result in a recession or depression.

Now as money/liquidity circulates in an economy, it tends to flow from consumers to producers and sellers of goods and services.  Thus, those who are in business and finance gain a disproportionate share of the money/liquidity in circulation.  Those who have assets see the nominal value of those assets rise with the growth of money/liquidity.  They can borrow against those assets and thus, grab hold of more money with which to invest.

The Wall Street Journal just reported that interest rates on 30-year bonds issued by the U.S. government rose to 4.55%, the highest rate since 2011.  The yield on 10-year debt obligations of the U.S. government is now 4.479%, the highest rate since 2007.

We can ask with the Roman Judge Lucius Cassius: “Cui bono?” – “Who benefits?”
Not poor inner-city families living in subsidized apartments and on welfare.  Not the middle class paying more for gasoline with declining real incomes.

The total debt to be paid by the U.S. government is now $33 trillion.

That is a lot of liquidity sloshing around.  The bigger the government debt and the higher the interest rate, the more cash the government must come up with to pay interest and then retire the principal.  The payment obligations increase the government’s annual budget.  Since tax revenues are not enough to pay all of such budget increases, the government will run deficits – government money going out as expenditures to fuel more inflation – with more debt accumulating for higher outlays down the road.  A doom loop?

And private sector capitalism is responsible for this?

Inflation is not the only way in which money can cause disequilibrium in capitalism, interfering with its ability to optimize the production of both private and public goods.  Both debt and asset bubbles, which frequently are interlocking, divert capitalism into misapplication of investment and misuse of wealth.  Too much debt – too much borrowed cash in hand – coupled with too little prospect of repayment, leads to enterprise collapse or personal loss of assets.

Too much money, often borrowed, spent on assets with the hope (often illusory – “irrational exuberance”) of appreciation in asset value in the minds of potential purchasers raises the market price of assets above what long-term demand will support.  At some point, short-term demand evaporates, as long-term demand sets market prices.

More Short Videos on Relevant and Timely Topics

We recently posted more short videos on relevant and timely topics.  They include:

Debt is an Illness

Is Capitalism Being Replaced?

The Medicine of the Moral Sense

Harvard and Free Speech

All our videos can be found on our YouTube page here.  We recently put them into 9 playlists, which you can find here.

If you aren’t following us on Twitter or haven’t liked us on Facebook, please do so.  We update both platforms frequently.

Former Minnesota Commissioner of Public Safety and former St. Paul Chief of Police Joins Board

John Harrington, former commissioner of public safety for the State of Minnesota and former chief of police for the City of St. Paul, has been elected to the board of the Caux Round Table.

As issues of moral government come more and more to the fore in our global community, John brings special insights to the work of the Caux Round Table in implementing its Principles for Government.  A fundamental duty of any government is to provide personal and community security with justice for the well-being of those it serves.

We need to ask, “Can there be moral capitalism where public governance is immoral?”

The institutional challenge in achieving and sustaining moral governance is: Quis custodiet ipsos custodes? – “Who will guard the guardians?”

John graduated from Dartmouth College with a bachelor of arts in religion and a minor in Chinese/Far Eastern studies.  He also received an MA in public safety from the University of St. Thomas and is now completing the doctoral program in criminal justice administration at Walden University.

His publications are: In Their Own Words: Why Kids Join Gangs – A Report to the MN Legislature, 1998; Partnerships for Public Safety; Minnesota Police Chief, 2007; Eyewitness Identification Protocol Reform; The Police Chief, 2009; Above and Beyond the Call of Duty, 2015; Minnesota to Mogadishu; Minnesota Police Chief, 2016.

John has been an adjunct professor at St. Mary’s University and St. Thomas University teaching community policing, gangs and juvenile delinquency, 21st century policing, diversity and policing, public policy and training.  He was also an assistant professor/community faculty and project director at the School of Law Enforcement at Metropolitan State University from 1985 to 2014.

Internationally, John twice traveled to Mogadishu, Somalia, to consult and teach with the Somali Police Force on community policing and has completed two supply campaigns for the Somali Police Force, including delivery of emergency medical supplies and an ambulance.

In 2011, John cofounded Ujamaa Place, a non-profit organization in St. Paul, with the mission to transform the lives of young African American men who have been incarcerated or in gangs, serving as the chair of the board and interim executive director.  Ujamaa Place has worked with over 5,000 men, with only five returning to incarceration.

John has been sought out for his community leadership:

·       Member of the Minnesota Senate
·       Co-founder of the Asian American Police Officer Association
·       Co-founder of Hand and Hand Inc.
·       Justice Research Center
·       National Association of Black Law Enforcement Executives (NOBLE)
·       Treasurer of Northstar NOBLE
·       Police Executive Research Forum
·       Somali Police Officer Association
·       Board member of St. Paul Intervention Project
·       Board member of Alina Hospital Foundation
·       Board member of Battered Women’s Justice Project
·       Board member of Circus Juventus
·       Board member of Interfaith Action

John was also chief of police of the Metropolitan Transit Police Department in Minnesota from 2012 to 2018.

During his tenure as chief of police in St. Paul, the city saw violent crime drop yearly, with gang and domestic homicides reduced by 50-90%.  Several innovative initiatives were created, including:

·       St. Paul Domestic Violence and Intervention Project
·       Operation Shamrock
·       St. Paul Police Foundation
·       2008 Republican National Convention – oversaw and managed security for the event
·       St. Paul Police Department Gang Unit
·       Safe City Initiative
·       Department diversity – offered the first Hmong Citizen Police Academy in the U.S.

We are looking forward to getting his wise counsel as a new member of the board.

We Really Do Have a Moral Sense

My alumni magazine from Harvard University came recently.  By chance, it included two short articles, each of which supported the conclusion that we human persons have a moral sense, whether we want to or not.

The first article reports that Harvard professor of biological anthropology, Joseph Henrich, argues that human intellectual brilliance emerged from generations of sharing information in communities and networks.  We humans, he says, are uniquely able to engage in collective information processing.

We can do this because we are moral creatures.  Aristotle made this point centuries ago, calling us zoon politikon – creatures driven by social and political needs for association and mutual understanding.

The threefold expansion of the size of our brains over the last two million years was driven, Professor Henrich says, by the need to acquire, store and organize cultural information.  From this, he concludes that societies which best capture and transmit inherited culture enjoy greater success.  Successful cultures facilitated specialization and intergenerational transfer of intelligence and skills.

Specialization, with its creation of a demand for cooperation and intergenerational interdependencies, depend on morality in the mind of individuals, tied together by those relationships and reciprocal responsibilities.

The second article reported on research identifying who are the best team players.  Professor David Deming at the Kennedy School ran simulations of team collaboration looking for clues as to who most enable success for the team.  A measure of teammate strength was developed to generate data for analysis.  The data led to identification of those better at teamwork.  Then, the researchers looked for traits those more proficient teammates had in common.

The most interesting commonality was a high score in the Reading the Mind in the Eyes Test (RMET).  This is a test for social intelligence developed to test for autism and Asperger’s.  The subject is shown photographs of human eyes and is asked to identify the emotions revealed by those eyes.  Being able to correctly infer another’s emotions just from looking at their eyes is a skill that leads to excellence in working with others in a team.

But that skill, in turn, is made possible by a mind that has moral awareness of others and of emotions.

The most common and universal skepticism about the possibility of a moral capitalism is that people can’t be trusted to be responsible for others that, as Herbert Spencer and other social Darwinists believe, we human persons are thoroughgoing egoists without any moral sense or at least with only very intimidated ones.

If, on the other hand, we are each born capable of developing a robust moral sense, as Adam Smith believed, then moral capitalism is a very practical alternative economic system.

What Has Happened to Us? Please Join Us for Lunch on the 26th

When we say the words “mental health,” our thinking likely automatically goes to things like depression and suicide.  But the fact is that being mentally healthy matters to all of us.  And let’s be honest here, that seems to be more of a struggle lately than it has been in the past.

All the news these days seems to be bad news.  From climate catastrophes, to deep political division, to warring nations, to a worldwide pandemic, it seems all we find everywhere we look is reasons to feel bad.  Suicide rates are up almost across the board.  Closer to home, the free online questionnaire offered by Mental Health Minnesota led to 10,700 mental health screenings in 2022 and they’ve already exceeded 18,000 screenings in the first half of 2023.

But, there is some hope.  While suicide rates are up in general, they actually fell 8.5% among 10–24-year-olds.  And mental illness is increasingly viewed as not something filled with shame, but an illness like most other chronic conditions, one that can be accepted, treated and lived with.

Please join us for an in-person round table over lunch at noon on Tuesday, September 26 at the Landmark Center in St. Paul for an in-person round table to discuss mental health and its importance to the times we find ourselves in.

Registration and lunch will begin at 11:30 am.

Cost to attend is $20, which you can pay at the door.

Lunch will be provided by Afro Deli.

To register, please email

The event will last between an hour and hour and a half.

More Short Videos on Relevant and Timely Topics

We recently posted more short videos on relevant and timely topics.  They include:

Thoughts on Cicero’s De Officiis

Reflections on the 2023 Global Dialogue

All our videos can be found on our YouTube page here.  We recently put them into 9 playlists, which you can find here.

If you aren’t following us on Twitter or haven’t liked us on Facebook, please do so.  We update both platforms frequently.

Is Our Species Evolving into a Post-moral Epoch?

Recently, I read the following pessimistic assessment of the state of humanity:

“In the future, …. we will surrender ourselves to our entertainment. We will become so distracted and dazed by our fictions that we’ll lose our sense of what is real. We will make our escapes so comprehensive that we cannot free ourselves from them. The result will be a populace that forgets how to think, how to empathize with one another, even how to govern and be governed.” – Megan Garber, “We Are Already Living in the Metaverse,” — The Atlantic, March 2023

Standing on the Shoulders of a Wise and Notable Consul of Rome

I was re-reading Cicero’s De Officiis (On Moral Responsibility) after our recent Global Dialogue.  I trust you have received a copy of the statement of participants in those dialogue discussions on the immediate need to promote responsibility across cultures and sectors, from individuals to organizations.

Our Caux Round Table Principles for Government rest on a premise of responsibility using the concept of office as a trust.

I was reading Walter Miller’s translation from the Latin and was quite surprised to see, for the first time, that Cicero had advocated the same moral vision for those in government as does the Caux Round Table.

Cicero wrote:

For the administration of the government, like the office of a trustee, must be conducted for the benefit of those entrusted to one’s care, not of those to whom it is entrusted.  Now, those who care for the interests of a part of the citizens and neglect another part, introduce into the civil service a dangerous element—dissension and party strife (Book I, XXV, 85).

Our Principles for Government start with this standard of conduct:

Fundamental Principle: Public power is held in trust for the community.

Power brings responsibility.  Power is a necessary moral circumstance in that it binds the actions of one to the welfare of others.

Therefore, the power given by public office is held in trust for the benefit of the community and its citizens.  Officials are custodians only of the powers they hold.  They have no personal entitlement to office or the prerogatives thereof.

Holders of public office are accountable for their conduct while in office.  They are subject to removal for malfeasance, misfeasance or abuse of office.  The burden of proof that no malfeasance, misfeasance or abuse of office has occurred lies with the officeholder.

The state is the servant and agent of higher ends.  It is subordinate to society.  Public power is to be exercised within a framework of moral responsibility for the welfare of others.  Governments that abuse their trust shall lose their authority and may be removed from office.

It is reassuring to discover that our approach has an excellent precedent.

July Pegasus Now Available!

Here’s the July issue of Pegasus.

In this edition, we honor one of the leaders of the Caux Round Table, Frank Straub, by republishing ten essays from his book, Culture Time at BLANCO.

I would be most interested in your thoughts and feedback.

Please note: Because we were unable to edit the individual essays, we weren’t able to delete the original page numbers and add new ones.