Lord Keynes is purported to have said that, in the long run we are all dead anyway. That glib quip, however, is less than satisfactory to those of us concerned not only about the immediate future of our civilization, but also of the inheritance which shall be passed on to future generations. Had those who came before us taken such a let them eat cake attitude, no single individual or group in one generation would have been able to produce the level of culture which we now enjoy. That the social consequences of inflation may take place over an extended time span does not in any way diminish their importance.
The set of relationships to which I wish to call attention are not extremely complex, but in all the concern over immediate economic calculation, are often forgotten. The progress of civilizations, those of the past as well as our own; has always been closely related to future time preference. Accompanying the specialisation of the market is a growing complexity and straifiction of the society. The most consistent basis for identifying classes within such a society is not wealth, or income, or education as is often suggested, but attitude toward future time preference.
The concept of time preference
Time preference is a fundamental concept of economics. In economics, it is the preference of an acting individual for present satisfaction over future satisfaction. Thus, a person with high time preference will generally prefer present goods to future goods. In a society characterised by high time preference, saving and therefore investmentwill be relatively low as people will prefer to consume goods in the present rather than save for the future.
Interest is based in time preference. As a general rule, people always prefer present goods to future goods. In order to give up present consumption in exchange for consumption at a future date, people naturally demand that their potential future consumption be higher than their present ability to consume. To give up $100 now, you must be offered $104, or $110 (or more) 12 months from now.
The prevailing rate of interest in a market is a reflection of peoples time preference. In societies characterised by high time preference, such as the worlds less developed countries, interest rates will be high as people will need to be offered that much more in the future to give up present consumption. In societies characterised by low time preferencethe developed westinterest rates will be lower as people are generally more future oriented.
Future time preference
As with most economic concepts, the concept of time preference can be applied more widely than in economics alone. The late Ludwig von Mises first recognized this, coining the term praxeology which he defined as the study of human action. To him, economics was a sub-set of praxeology, albeit the most highly developed area of the study of human action.
It can be readily seen that time preference refers not only to a persons choices between the present and future consumption of goods and services, but to an attitude to life in general. A person with high time preference is present-oriented, and prefers present-related activities to future-related activities. The present-oriented person may not only choose to consume almost all of his current income, he may also choose a job which, while initially high rewarded has few prospects of increasing rewards as time goes by.
The person with a low time preference (who has a high future time preference) in contrast, may choose an activity which is initially lowly-paid, and which may also require substantial learning, but which, in the future, will return significantly greater rewards. The rewards may not only be monetary, but also in terms of job satisfaction.
For purposes of clarity, I will use the term future time preference for the remainder of this article. High future time preference is a relatively higher future-orientation; low future time preference the reverse.
Future time preference and class
According to Marx, social classes were defined economically, by income and ownership of the means of production. However, Marx went further than merely categorizing people on the basis of their material means. Peoples relationship to the means of production also characterised their attitudes to life. Marx erroneously assumed that workers and capitalists and landlords were homogenous groups, with each member of each category having a communality of interests and attitudes with each other member, especially as those attitudes related to members of other classes.
Income, or any other such criteria, is a valid means of categorization, but such a categorization has limited applicability. Had Marx been talking about a caste system, with insurmountable barriers to achievement, there is little doubt that a millionaire would be more esteemed than a Nobel laureate in medicine such as Jonas Salk.
Much of what I have said above was clearly grasped by the founders of the American Republic, and they debated with great passion in their letters and other writings how such a society might be developed. We can appreciate this debate once we understand the meaning of a terminology that dominated what might be called the Republican Paradigm from Machiavelli to Jefferson. The key terms were a natural as opposed to an artifical aristocracy. These terms were in numerous letters during the years under the Articles of Confederation (an era of inflation one might add), and in a fundamental sense, the Constitution can be conceived as an instrument to promote a natural aristocracy in the face of what some American leaders conceived as a rising tide of artificial aristocracy. By aristocracy, of course, they meant not any kind of hereditary caste system, but a class or classes based upon objective criteria with mobility upward and downward.
The most profound discussion of these issues took place between Jefferson and John Adams in the twilight of their years in a correspondence which has since justly become well-known. Jeffersons solution to developing a natural aristocracy of talent and virtue was to push for a widespread system of state supported schooling. It would appear that his whole outlook on this subject was influenced by Confucian ideas then being brought to Europe by French jesuits. In any event his was the same alternative offered centuries before by Confucius, and with predictable results. Examinations in schools are always artificial to the extent that they can never perfectly correlate with the marketplace of achievement in real life. Whether in China or America, that system, once established, can only lead to a debasement of standards until the grades or pieces of paper signifying academic achievement become inflated and their value declines precipitously. Adams was far more libertarian than Jefferson in pointing out there were numerous talents in the market place other than the academic, and that there was little evidence (despite Confucius) that schooling inculcated virtue.
Armed with this insight, we can begin to comprehend the kind of Egalitarian-Bureaucratic-Caste State that is developing in the United States. Does that description appear a contradiction? I think not. Aspects of it appeared in ancient India and China, the development of which has been brilliantly described in several volumes by Amaury de Reincourt. Egalitarianism, as noted earlier, must end in bureaucracy, which is given a powerful impetus by the emphasis on schooling. Once the State becomes powerful in a multi-racial and multi-ethnic society, caste begins to appear in the form of various groups demanding a quota, or piece of the action, such as women, blacks, chicanos, etc.
The Founding Fathers were not wrong in their view that the key to developing a healthy, free, creative society is to discover and promote the criterion or criteria that leads to the emergence and continuation of a real natural aristocracy! If we substitute class for aristocracy, we are at once in the midst of a debate which has occupied modern social thinkers, especially in this century.
Inflation and future orientation
The fundamental consequence of permanent inflation becomes obvious: it tends to destroy the exercise of future time preference, which is in turn the essence of class, of mobility within society, and, ultimately, of continued economic and social progress.
While some may disagree, I believe Banfield is quite correct in the importance of future oreintation as the key to understanding class behavior and social structure. What cannot be argued. I think, is that a policy of continued, so-called moderate inflation (to say nothing of a hyper-inflation), not only makes economic calculation difficult, it tends to severely curtail, of not destroy, the virtue of future orientation in a society.
What does a parent trying to teach future orientation and saving say to his child when it is suggested that we might as well spend money today and live it up, for it will be worth less tomorrow? Of course, a few people with intelligence and a deep sense of future orientation will seek for ways to place themselves beyond the reach of the inflation. This becomes more difficult, when we have global inflation and a world-empire.
If this analysis offered above is correct then, as the logic of future orientation is eroded away by inflation, there will be a corresponding growth of lower class, present orientation among persons who used to be working, middle, and even upper class. Since this is, as Rainwater suggested, part of a patterning or syndrome, it is not simply that saving and other attributes of future orientation will cease, but that millions of people will assume all of the other aspectsincreasing violence, drugs, alcoholism, etc.that had always been a part of lower class behavior.
The irony is that the cause of events tends to be precisely the opposite of the analysis of Karl Marx. If these trends continue there will be a growth in the size and misery of the proletariat. It will be due, however, not to the future orientation which has formed the core of the spirit of capitalism, but rather to inflation, the great engine of which is an egalitarianism driving politicians to make promises upon which they cannot possibly deliver.
A few with wealth may be able to buy some security from the voracious appetite of the bureaucracy, while the greatest disaster will be among those in the middle, driven increasingly toward lower class status and attitudes. The evidence of this shift is already evident in emerging pockets which manifest a culture of poverty, that is, they are virtually devoid on any future orientation whatsoever!
Some evidence for hope
The trend of things cannot lead one to be overly optimistic that our civilization will reverse a pattern which has occurred with alarming frequency in past civilizations. Yet, there is cause for hope, and evidence for optimism erupts in some of the least likely places imagineable!
It has become rather common place to talk about a culture of poverty in Latin America and other places, based upon the writings of researchers of a socialist bent such as Oscar Lewis. While that picture is not inaccurate with respect to many slums, festering around some Latin American cities, it is completely at variance with the research of anthropologist William Mangin, with respect to what he calls squatter settlements. These grass hut communities of thousands literally spring up overnight, often after the authorities had foiled earlier efforts. The entrepreneuership and future orientation in these essentially self-governing settlements is remarkable. The housing slowly improves, many saving to invest in their businesses. Their primary desire is to keep the state off their backs. Few of them will ever be the recipients of American aid which is channeled to the bureaucracy. Mangins work, however, is a reminder that many of our stereotypes about reality simply do not fit, and that if we keep our eyes and minds open, those of us who oppose global inflationism may find allies in the most unlikely places!