Tom Mueller: Currency debasement is the root of our problems

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A recent, heavily redacted confidential RCMP report warns that Canada’s economic prospects are “beyond bleak,” expected to “probably deteriorate further,” and may cause civil unrest in the next five years.

“The coming period of recession will… accelerate the decline in living standards that younger generations have already witnessed compared to earlier generations,” the report reads.

An RBC analysis echoes a similar refrain, describing Canada’s housing affordability as the “worst ever.” As recently as 2019, 60 per cent of households could afford to own at least a regular condo. That share has slipped to 45 per cent. Now, only the richest 26 per cent of Canadian homebuyers could buy a single-family home.

In short, COVID-19 “free money” has drop-kicked us into penury. As economist Milton Friedman explained: “Inflation is always and everywhere a monetary phenomenon… produced only by a more rapid increase in the quantity of money than in output.”

‘Currency debasement’ offers an apt description of our predicament. Until 1968, the silver content in one Silver Dollar coin was approximately 0.658 ounces, or at today’s prices, $22.75. Interestingly, that was also when one dollar was Canada’s minimum wage.

Today, Canada’s average minimum wage is $15.26, implying that our minimum wage has effectively declined by a third in a generation. This could help to explain why in 1967, on Canada’s 100th birthday, we were the third-richest country in the world (measured by GDP per capita), while today, we rank 22nd and falling.

In 1971, U.S. President Richard Nixon unpegged the American dollar from the gold standard – and, by extension, all currencies tethered to it. Nixon declared: “We are all Keynesians now,” deferring to economist John Maynard Keynes, who in 1923 suggested the gold standard was “a barbarous relic.”

Keynes’s nemesis, economist Friedrich Hayek, countered: “With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.”

Hayek had a point. In the mid-60s, the price range of an average Canadian home could be covered with the equivalent of 394 to 571 gold coins. Today, prices are ostensibly cheaper – from a mere 101 coins in Newfoundland-Labrador to 415 gold coins in Vancouver.

The drawbacks of a gold standard can be avoided as long as we adhere to Friedman’s neoliberal economics: The supply of money must never exceed the corresponding increase in goods and services. Common sense must replace Keynesian profligacy. Thus, government spending and central bank policy must be strictly constrained.

Until then, policymakers may want to revisit Hayek’s great classic, ‘The Road to Serfdom,’ before RCMP’s dire predictions become our reality.

Tom Mueller is a former biomedical researcher, retired teacher and columnist for Brunswick News