In my article on the gold standard published in the Journal of Libertarian Studies back in May, I recommended that the damage of the gold standard caused altering consumption patterns, specifically to a drop in the usage of beef. The eminent economic expert George Selgin was kind enough to suggest that this was a novel argument, although in truth, because essay I did no more than tip en passant at a possible connection between fiat money and changing usage patterns, without describing what the causal aspects at work are. Therefore, I think the thesis bears restating and expanding upon.
Changing Food Consumption Patterns in the Twentieth Century
The change in meat intake was an international phenomenon, however for present functions, I will focus on the American case, although the same causal elements are at work, and probably to a higher level, in the rest of the world. The United States Department of Farming’s Economic Research Study Service (ERS) compiles and releases copious information on food schedule, that is, how much of various foods are readily available to the American consumer. Various kinds of meat are partial replacement for each other, as are, obviously, other foodstuffs; however, it appears a fair assumption to say that, in general, people would consider beef, pork, and poultry (the top 3 meats) the closest substitutes. Just in extreme cases would one consider, state, soy a substitute for tasty beef.
The ERS dataset for meats covers the period 1909– 2019 and determines accessibility in pounds per capita. In 1909, there were 51.1 pounds of beef, 41.2 pounds of pork, and 10.4 pounds of chicken available per capita, for an overall of 102.7 pounds of all meats per capita. In 2019 the figures were, respectively, 55.4, 48.8, and 67.0 per capita, for a total of 171.2 pounds of all meats per capita. While meat consumption had actually gone up, the composition of the diet plan had actually changed considerably. If we add the reality that veal and delicious lamb, minor components in 1909 at 5 and 4.4 pounds per capita, respectively, had essentially disappeared from the diet plan in 2019, the change ends up being a lot more visible.
The following chart indexes the changing composition of meat accessibility over the century (1971=100). As we see, there is a stable and drastic rise in chicken schedule from about the early 1950s, while the growth of beef accessibility peaks in 1976 and then drops steadily back toward the 1909 level. While availability of all meats expands until about 1970, it stagnates afterwards.
Source: Kristoffer Mousten Hansen, “The Populist Case for the Gold Requirement,” Journal of Libertarian Studies 24, no. 2 (2020 ): figure 6. Information from ERS Food Schedule (Per Capita) Data System.
If we look at modifications in the relative costs of the different foods over the long run, a comparable photo emerges. Beef prices have increased since the middle of the twentieth century, while other prices have fallen.
Source: Data from David S. Jacks, “From Boom to Bust: A Typology of Genuine Product Costs in the Long Run,” Cliometrica13, no. 2 (2019 ): 202– 20, Data on Real Product Rates, 1850– present online dataset.
Unfortunately, poultry prices are not noted in the dataset. However, we can approximate them by taking a look at grain prices, as this is a main input in the raising of chicken.
Source: Jacks, Data on Real Product Rates, 1850– present.
I have actually here chosen barley and corn rates, however it does not matter much, since the pattern is comparable for the prices of all grains. Costs have actually decreased since midcentury despite some variations in the seventies and are now far listed below the level that prevailed for decades. Beef costs, on the contrary, have trended much higher and remained in 2020 about double the level in 1900 or 1850. If we think about the relative price of beef, it is much, much higher, so we should not be surprised that meat consumption has actually moved to cheaper replacements: pork and particularly chicken. It is clear that an essential change has actually happened in contemporary food production.
The Monetary Causes of Altering Food Production
The rate data provided above may itself recommend that this change originates in the monetary order. Till the 2nd years of the twentieth century, prices were, in general, quite stable. There were fluctuations from each year to the next, but not the sort of long-term changes that set in later. This coincides with the era of sound money, when money was a product (silver or, from 1870 practically specifically, gold) and had to be produced as any other commodity: if you wanted more money, you needed to give something else in exchange for it. It did not matter if you selected to obtain more money by producing other items and exchanging them or investing your own labor and capital in gold mines; the economic effects were the very same.
This altered, as is popular, with the damage of the gold standard in 1914 and the introduction of increasingly inflationary monetary systems after the world wars. However, inflation can not, in itself, discuss the altering pattern of food production. Inflation, after all, leads to redistribution of wealth and short-term dislocations and malinvestments– however long term, it leads to greater prices for all goods. Since what we have experienced is a much higher supply of and lower rate for chicken especially relative to beef, simply positing inflation does not discuss anything.
Another method of developing the change is as a trend of efficiency increases and lower costs in the production of grains and chicken relative to beef. As basic inflation is a demand-side phenomenon– more money chasing after fewer goods, in the Friedmaniac expression– looking at the supply side may seem to omit the possibility of monetary causes. However, as Ludwig von Mises plainly discussed, in the modern fiat system, the production of money is totally connected with the extension of credit. While credit expansion was possible under the gold standard, the requirement for gold redemption put an inevitable brake on the procedure after a few years, making sure that it was always kept within narrow bounds. In the financial system established after World War II, nevertheless, there are basically no such brakes. Banks now have a much broader scope for credit growth, as the central bank stands prepared to supply them with reserves as needed and to bail them out when the inevitable, today much delayed, bust shows up. Rather of intermediating credit, banks produce the money they provide, and they can therefore regularly charge a rate of interest lower than the natural rate, as contrary to appearances, their profits accrue not from credit intermediation, however from money creation.
This necessarily results in a change in investment patterns, as bank credit significantly dominates. Some sources of capital, such as money cost savings, are now made virtually difficult due to the naturally inflationary nature of the system, and equity funding is usually dissuaded, as bank loans at low rate of interest are a lot more appealing. Refrains from doing just the source of capital modification, however likewise the type of investment: enterprises end up being more “capitalistic” as it were; they purchase capital goods and brand-new production procedures that increase the physical productivity of their plants. Present performance is boosted at the cost of long-term strategies that may have been more worth productive.
This is true in farming also, and is evidenced by the big increase in physical efficiency in farming since the late 1940s. However, such efficiency increases are merely not possible when it comes to cattle and beef production. A cow needs a particular minimum acreage of land to live; she requires a grass-based diet plan, which in turn needs substantial pastures and hay fields and so on. While it is possible to supplement with other feeds, and while it is, obviously, possible to increase the efficiency of more substantial cultivation too, such possibilities are overshadowed by the advancements in the production of pork, chicken, and other products. A location of land which previously could be used to raise a herd of livestock or produce a quantity of grain can after ten or twenty years’ time be utilized to raise a herd of the very same size– or two or three times the quantity of grain. The chance expenses of raising cattle are hence continuously increasing.
Looking more directly at poultry and pork production, here we have actually also seen substantial increases in performance due to bank-fueled financial investment. Brand-new production approaches and financial investment in contemporary plants have actually tamed the natural life cycles of piglets and chicks alike and brought them nearly totally under human control, opening the way to mass production. Up until now, at least, this has proved impossible in the case of cattle raising. Regardless of hyped stories about feedlots, the modern-day factory farm is genuine only when it pertains to pork and poultry production. These business and plants have a much larger scope for investment of the kind that banks are willing to fund, and for this reason they will continue to broaden and increase productivity relative to beef production.
Conclusion
Once we acknowledge the intimate connection in between credit expansion and cash production in the contemporary financial system, we can see how deeply fiat cash and fortunate banking misshapes the financial order. Banks make seigniorage– the benefit from cash production– by extending loans, and can therefore outcompete other sources of funding, be it people’s personal savings or independent loan providers. As an outcome, credit is centralized in the system of credit-expanding banks and financial investment decisions are determined by the short-term logic of stated system. Changing diets is just one repercussion of the distortions engendered, albeit one that nobody, rate Selgin, has investigated previously.
Considering that financial investment has actually flown into the production of grains, pork, and poultry, efficiency in these fields has increased more than in beef production, and the supply of these foodstuffs has increased while their rates have fallen relative to the supply and cost of beef. Individuals’s food spending plans are normally pretty repaired, indicating that although incomes increase the additional income goes to the purchase of other durable goods, not food, a generalization referred to as Engel’s law. Beef therefore progressively becomes a high-end, something just routinely consumed by the well-to-do, which working-class and lower middle-class individuals just enjoy on special events. Had the gold basic sustained, this distortion of production patterns and diet plans might not have occurred. We might then, perhaps, have actually needed to do without KFC and Chick-fil-A, but then again, Chick-fil-A is only a palliative when a guy is constrained to survive principally on chicken, the broccoli of meats.