Government debt is a hidden tax on all savers in Idaho | Opinion

In 1738, a lawyer named Claude-Henri Linotte made a decision that seemed to guarantee the financial future of his family. After negotiating a massive property sale for the Duke of Bouillon, Linotte declined a one-time reward of 40,000 livres in favor of a perpetual annuity of 1,000 livres per year, to be paid to him and his descendants forever.

Today, nearly three centuries later, the French government still honors this obligation, known as the Rente Linotte . However, the “security” Linotte sought has been completely erased by centuries of government debt and currency revaluations, the annual payment has dwindled to a mere €1.20, which is less than the cost of the stamp needed to claim it.

The story of the Rente Linotte is more than a historical curiosity. This French story is a stark illustration of what I have written about in this column for years now. When a state assumes massive obligations it cannot meet through traditional revenue, it inevitably resorts to currency debasement. As Adam Smith observed 250 years ago, the “profusion of government” often retards a nation’s progress in creating wealth. To the politician, debt is a tool to shape society. For the rest of us, it is an “unseen” tax that erodes the value of every dollar saved.

Again, this is not just a history lesson. The US government is in need of raising this unseen tax as the Congressional Budget Office says that unless things change, debt held by the public will rise to 175% of the country’s annual income over the next decades.

Congress has delegated monetary policy to the Federal Reserve, but that so-called independent body has been a complicit tax collector. Since the financial crisis of 2008, the Fed has moved beyond its traditional role as a “lender of last resort” to become a central player in almost every sector of the economy. By acquiring now more than $4 trillion in US government debt issued to fund deficit fiscal spending, the Fed allows for a higher level of government intervention in the economy than would not be possible otherwise.

While monetary policymakers promise this “accommodative” policy will spur growth, they ignore the moral hazard they create. When the government guarantees everything, from bank deposits to corporate debt, individuals and firms take on excessive risks because they have less incentive to be careful about losses. Furthermore, as the Linotte family learned, inflation is a tax on savers. When the government “prints too much money” in this manner, prices rise, and the real value of consumer savings is worn away.

The lesson of the Rente Linotte is that government promises are only as good as the currency they are paid in. We cannot expect a “free lunch” from political leaders who attempt to fine-tune the economy through debt and monetary manipulation.

If we wish to see the standard of living for families increase, if we want real security for our offspring, we must reduce government spending and reconsider the scope of government. History shows that the statesman who attempts to direct our capital will end up failing to honor their promises.

Peter Crabb is a professor of economics and the director of the Center for the Study of Market Alternatives at Northwest Nazarene University in Nampa.