That is right. We all learned that in grade school, but apparently some lessons need to be learned and relearned here in this House of Commons. What happened was by the early 1980s, inflation had risen to 12% in Canada. The government claimed that if it kept printing money, this would stimulate the economy and create jobs.
What it delivered was 12% unemployment and 12% inflation. It is worth spending a minute on this. Why is it that high inflation actually kills jobs, contrary to what the so-called experts always tell us? The answer is that prices are information; prices are some of the most powerful and condensed forms of information ever known to humankind.
The great economist Milton Friedman explained how complicated it is to make a pencil. He basically said that the lead comes from a lead mine in Asia; the rubber comes from a rubber tree in another part of the world; the timber might come from a forest in the western United States, and the paint might come from a titanium mine somewhere in Africa. All these people are working together to make a pencil. None of them actually know they are making a pencil, but they agree to make the ingredients of the pencil because they are zapped with a laser beam called “the price signal”. The price is high enough to incentivize them to make the investments and do the work to supply the goods.
The consumer knows what it costs to make that pencil, not because they called all the mines and all the forests and asked them all to feed in the price, and pulled out their calculator and figured out what it should cost to make a pencil. No, the consumer knows because when they walked into the store there was a price, and that price basically zapped to them the cost of making the pencil; the hundreds of people who unknowingly conspired to make it communicated that information to the buyer just like that. Then the consumer calculated in their mind that the pencil was worth more than the money they had to spend to get it. Therefore, all of those laser beams led to that wonderful little transaction that brought the consumer home a pencil.
Here is the problem with inflation: It messes with all those information signals.
Just last week, I was in New Brunswick and I was speaking to a gentleman who was in a recycling business. He signs five-year agreements to do the recycling work for other companies. Here is the problem: When he does not know what the price is going to be over the next five years, he does not know what he should charge. He locked in contracts that expected inflation to be the normal 2%. Now, we have 5% inflation and it is potentially rising. The difference is that over a five-year period, instead of having 10% total inflation it will be closer to 25% or, with compound interest, 30%. Now, he is getting actually 20% less in his fifth year than he thought he was going to get.
Therefore, all these information signals that allow people to exchange work for wages, product for payment and investment for interest are totally scrambled by inflation. The technology that is supposed to allow us to transport value through space and time is scrambled. It is like scrambling the hard drive on a computer. All these signals mess with the ability of humans to exchange value with one another, and when that system breaks down, everything breaks down. That is why inflation has almost always led to social disorder.
It also allows those with the greatest means to profit the most, because they can move their money into things that are inflation-protected, like land, buildings, private businesses, stocks, bonds and countless other assets that inflate in price. Meanwhile, the people who actually live off their wages see a real pay cut. Those people who are wealthy enough not only profit by watching their assets inflate in value, but the real value of the debts that they take on shrinks in inflation-adjusted terms. Therefore, those who have access to the financial system get vastly richer as their debts shrink in real value and their assets inflate; and those who do the work, the people in the fields for whom we painted these floors green, watch the fruits of their labours wither away by this inflation.
Therefore, I rise today to call for a restoration of the real integrity of our money, to bring back the meaning of money, which is to transport value over space and time, to restore free markets among free people and to put the commoner ahead of the Crown.