There is a lot to be gained from a detailed understanding of history, an obvious statement I know, but one that is so very underappreciated in the economic context. For what little passes as historical “study” today, even less is accounted on the economic side. I have little doubt, in marveling at that, politics and ideology accounts for much of the deficiency. There is too much invested in the current state of affairs to allow prior events a placement of possible rebuke (empirical at that).

The clear mistake of intentionally appealing to inflation as some sort of fostering economic agent, for example, is one that has already been told many times before – least of which in the relatively recent turning tide of financialism in the 1960’s. The Great Inflation was itself tied directly to that “evolution” of economic theory bending toward monetary activism based, peculiar enough, on a very narrow interpretation of earlier history.

If you go back even before all of those events, you will find almost exact parallels to current circumstances – history does indeed rhyme. There was the “fiat” age and experimentation of global economic management in the 1910’s and 1920’s that, upon review, sound as much like the 1990’s and 2000’s than being almost 19th century. And even before all of that there were the farmers.

The agrarian agitation is most famously captured by William Jennings Bryan’s famous lament of the “cross of gold.” What he was really saying was, as if Ben Bernanke were his reincarnated spirit, deflation is bad.

Nineteenth century farmers were essentially the “victims” of progress. Deflation was not deflation, but rather the inevitable upward surge of a capitalist system brimming with innovative adaptions. Such processes reducing the price of food from all-consuming to only a small proportion of non-discretionary expense was an unassailable good in the rise of society. The small family farm was just on the “wrong” edge of that industrializing wave.

Fortunately for the farmer, there were opportunities to be had elsewhere in the industrial age of mass production. The mechanism by which all of it occurred was profitability, so that “deflation” in that sense was simply the fact that food production had become less profitable, owing to mechanization, under its existing format. Thus resources, especially human labor, were to be allocated elsewhere in opportunities that we see as modern life growing out of essentially seeming nothingness.

So the impulse to redirect prices, and thus profits, by Bryan and his silver impulse was anathema to the rise of the modern world. Unfortunately, this became the bedrock assumption of orthodox economic and monetary theory.

The appeal to silver was an appeal against “deflation”, which the generations of 1930’s scholars assume is the most vital factor in the course of economic management (rather than whether economic management and monetary socialism are at all worthwhile endeavors). The cross of gold which Bryan alluded to has been picked up and discarded by the Fed’s policy apparatus from Greenspan’s tenure forward.

It is a quixotic quest, however, tilting at the windmills of actual progress. What Bryan and his fellow farmers failed to count was that such deflation was not monetary in its origin (which the modern monetarists agree) so much as price pressures then were innovation being adopted and capitalism raising the living standards of everyone in clear market view of it. To debase the currency through silver, as was done leading up to the 1893 panic and depression, was beyond silly as it amounted to trying to undo progress.

And “they” are still at it. It comes with the idea that targeting 2% inflation is somehow “stability.” Further, like Japan, inflation is actually treated as some kind of economic tonic, a solution to stagnation (when instead stagnation universally coincides with even small proportions of currency instability).

As if to prove this point yet again, particularly the means of inefficiency that is injected into the inflationary “mandate”, the Cato Institute describes the modern version of all of this – with the sympathetic family farmer now replaced by the crony “capitalist” factory farmer so very close to the government.

Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.

The post there goes into great detail about the philosophy of having a WTO in the first place, but the paragraph quoted above is the most damning in terms of actual economic function (and the relation to rising and artificial prices). The US government intends to override profit considerations that would otherwise make textiles, and thus clothing, cheaper for the public. Instead, cotton farmers in the US are to be kept artificially supported in this manner rather than forcing them to re-allocate resources to where they might be more efficiently put to good use (raising living standards in another fashion, no pun intended).

Do that in enough places, through direct government involvement as well as the continued heavy hand of financialism, inflation and inefficiency become the economic order – as does the resulting stagnation. In more simple terms, the government would never be as all-encompassing in its reach without “inflation” and the central bank indirect subsidy.