In 1919, Vladimir Lenin gave an interview explaining the drastic inflation in Soviet Russia.
He was two years into his reign as leader of Soviet Russia (which became the USSR in 1922), and as might be expected, paying for the various communist programs required more money than the Soviet treasury could bring in through taxation. So, the Soviet Treasury started printing the difference, which sparked inflation.
Of course, the communist leader only discovered this problem after the fact, but instead of acknowledging inflation as a consequence of excess government spending, he explained it away as a purposeful policy to destroy capital. It was a very early example of “yes, this bad thing is happening, but it’s actually good…”
From the interview:
“Hundreds of thousands of rouble notes are being issued daily by our treasury. This is done, not in order to fill the coffers of the State with practically worthless paper, but with the deliberate intention of destroying the value of money as a means of payment. There is no justification for the existence of money in the Bolshevik state, where the necessities of life shall be paid for by work alone.
The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort…
Already even a hundred-rouble note is almost valueless in Russia. Soon even the simplest peasant will realise that it is only a scrap of paper, not worth more than the rags from which it is manufactured.
Men will cease to covet and hoard it so soon as they discover it will not buy anything, and the great illusion of the value and power of money, on which the capitalist state is based will have been definitely destroyed. This is the real reason why our presses are printing rouble bills day and night, without rest.”
This long quote has been condensed, editorialized and transformed into another quote attributed to Lenin and popularized by Ronald Reagan, that you might be more familiar with:
“The way to crush the middle class is to grind them down between the millstones of taxation and inflation.”
There’s basically no evidence at all that Lenin said this exact quote, but it certainly seems to be in the spirit of his beliefs and policies as leader of Soviet Russia. The middle class doesn’t need a communist revolution because they’re prosperous and independent enough to do fine without it. Therefore, it’s necessary to destroy the currency to coerce the middle class into embracing communism, which makes a kind of perverse sense.
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In any event, however you may feel about Lenin, his shrewd explanation of inflation is correct.
It does undermine people’s trust in markets and the very units of account that underpin them. It’s highly corrosive to endlessly issue new currency units, making price discovery difficult, savings nearly impossible, investment a gamble, plans for the future a faint dream.
Millions of young Americans simply do not believe there is a future for them under a capitalist scenario. They perceive inflation and a dishonest currency in its manifestations of rising prices that make nearly everything unaffordable. Very few people have the sophistication to understand the real, monetary cause of their pain.
The typical paths of prosperity their parents and grandparents urge them to pursue seem closed off, out of reach, or even pointless.
They fall easy prey to narratives about greedy business owners who (apparently) just discovered they can raise prices to gouge their customers. The worst cases simply no longer believe they have agency to improve their lives.
If you want evidence of this kind of mindset, it’s legion in all of social media, on college campuses, in pop culture. There’s a massive hopelessness that’s gripped young people, and it’s almost entirely downstream of the ongoing currency destruction we’re living through.
And it’s likely to get worse as the currency becomes more debased over time – especially if the US stock market takes a tumble.
Then it won’t just be young people who start to lose hope about economic freedom. We could see millions of retirees see their retirements cut in half, almost overnight at the same time that their social security checks fail to keep pace with inflation.
They’ll be squeezed between rising prices and falling retirement accounts.
Lenin’s dream.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
P.S. I have more thoughts about how this scenario will play out.
I put all of my predictions and solutions in a short presentation you can watch here for free.
I call it “America’s Financial Suffocation” and I believe it’s one of the most important pieces I’ve written this year.