The peoples of the Western world have come to experience a strange admixture of prosperity and disillusionment. This would have surprised our ancestors. There exists, of course, an old and simple explanation for this strange state of spirits. Human nature is such that prosperity does not necessarily bring contentment: when people have it too good they become spoiled. This, vulgarly put, certainly explains something of our present condition. But it is no longer a sufficient explanation. The current disillusionment with the availability of the goods of this world has not been merely the psychic consequence of the oceanic wave of popular prosperity that is now engulfing large portions of the world. The two conditions have not been successive: they have developed together. Our unprecedented affluence has been accompanied (and in some ways it has been furthered) by a sense of impermanence and of uncertainty.

Things were very different at the beginning of the 20th century. Money, at that time, was much more powerful than ever before or after. It could buy practically everything, including power and prestige. Conversely, people without money, including those who were only temporarily deprived of it, experienced personal humiliations and miseries that may have been unknown to their ancestors, and are largely unknown to us. On the one hand, wealth, more than ever before, was a most powerful and rapid solvent of class and caste barriers. It made social mobility possible to an extraordinary degree: it was, thus, a very important factor in the democratization of peoples. On the other hand, to many people this hard reign of wealth seemed to be more unjust and immoral than the injustices of earlier societies that had rested on distinctions of birth. At any rate, few people remembered the latter while they contemplated the former. Few people also realized that the capitalistic order (if that is the right word) was about to come apart by its very success, and in the very opposite pattern from the one with which Marx had knit his hoary theoretical rug together: the rich, instead of becoming fewer and fewer, were becoming more and more numerous, and in the most capitalistic of countries such as the United States or Britain or Switzerland quite a lot of money was filtering down to the lower classes. The circulation of money increased apace with the circulation of people: sociologically, the decades before 1914 were decades of democratization, that is, of the inflation of society.

Surprisingly enough, monetary inflation did not follow. This is one of the most extraordinary phenomena of the hundred years before 1914, but social savants, not to speak of economists, devoted no attention to it at all. The social order, especially at the top and bottom, was becoming faster and looser, yet money continued to be as good as gold, and as solid as the rock of Gibraltar. In 1900 the pound, the dollar, the franc, the florin, the mark, the lira—all of these national currencies with names that reach back to the Middle Ages—were worth, in each other’s terms, the same everywhere. Their value had not changed in decades, for some of them not in a hundred years. They were available in the form of gold pieces,¹ silver coins, and bills, freely exchangeable at one’s convenience. Silver coins were heavy, gold pieces substantial, paper bills were larger than they are now. Money was solid, tangible, palpable, it carried its own weight. No wonder that to many people—especially to those who were habitually short of it—it seemed as if it were the prime, indeed the only, reality in the world. Some people, who should have known better, carried this article of belief with them to the Great War. In Britain the President of the Board of Trade told the House of Commons in August 1914: “No government action could overcome economic laws and any interference with those laws must end in disaster”—one of my favorite quotations. In reality, economic laws have affected our lives as have laws against adultery—not more and not less.

The Great War swept much of this away, in Europe. The nations exhausted their resources, their governments accumulated crushing debts to other states. This is the usual explanation for the collapse of the 19th-century economic order; it makes, of course, much sense; but there was more to it than that. What followed the war demonstrated—or, rather, it ought to have demonstrated—that economic crises were the consequences, not the causes, of crises of national (and only sometimes of international) confidence. For one thing, during the entire First World War the solidity of money remained unshaken. In England, for example, paper money remained exchangeable into gold;² in Germany, where it was not, one gold mark in the summer of 1918 was worth 1.57 paper marks—considering the state of Germany at the time, not much of a rise. During the Second World War, however, the confidence in governments, and in their currencies, was no longer what it had been during the First.

For another thing—and this is probably more important—the inflation of society had begun to affect economic stability even before 1914. There was the beginning of the taxation of incomes, the first slight turn toward the welfare state. There was also a slight rise of certain prices. Probably this would have developed at a faster rate even if there had been no World War in 1914. Sooner or later the inflation of money would have caught up with the inflation of society, that is, with the inflation of minds. For the distribution of wealth is the consequence, not the cause, of the movement of minds: a simple truism which would not be worth repeating, were it not that it runs counter to the most widespread idiocy of the 20th century—the belief in economic determinism, and in Economic Man.

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The principal characteristic of the 20th century is inflation: inflation of money, of wealth, of production, of people, of society, of minds, of words, of communications. When there is more and more of everything, when things change hands more and more rapidly, they are worth less and less. It is as simple as that. Every state and every people on earth have been subject to it, in one way or another. At times, a crisis of confidence in the authority of a national government has led to a runaway inflation: this happened in Central Europe after the First, and in a number of other countries after the Second, World War. In the long run such fantastic and painful interludes of disorder were probably less harmful³ than the continuous, gradually accelerating inflation of national currencies.

For a while the United States, alone among the great powers of the world, escaped this fate. After the First World War she was not only the most productive but the richest state in the world, she changed from a relative debtor to an absolute creditor among nations. During the 1920’s her currency was still as good as gold, in some places even better. During the same time her entire society was being transformed into a shape without precedent, gradually inflating itself into an enormous bulge around the middle. Again the inflation of society ran ahead of the inflation of money. The international value of the dollar remained the same, and within the United States prices hardly increased at all. There were a few exceptions: the prices paid for movie actresses, for Florida real (and also for unreal) estate, and for stocks and bonds had risen, beyond the dreams of avarice. The last were most important, because a large portion of the population was involved in them, not without a periodically nagging feeling of insecurity, or perhaps even of guilt. In late 1929 the stock-exchange boom caved in. Such stock-exchange panics had occurred periodically in the European and American capital markets before 1914 with few important effects in the long run. The panic of 1929, too, would have been no great loss for the United States and the world had it not been for two new elements without precedent: the speculation now included millions of people, not merely a few thousand financiers and fast-money men; also, the international economy of the civilized world was connected with the finances of the United States, otherwise a self-proclaimed isolationist power. The result of the American people’s sudden collapse of confidence in their own speculations was the international depression that engulfed the entire Western world for five or six years. Eventually it was corrected by such men as Hitler, Mussolini, and Roosevelt who, to their own good fortune, knew nothing of the laws of economics.

This depression—no matter how widespread and temporarily tragic were its effects (in the United States the depression, not the two World Wars, was the traumatic experience of an entire generation)—was an anomaly, a flat footnote in the history of the 20th century, hardly qualifying even for the proverbial exception that proves the rule. The rule of the 20th century was inflation, not depression. Nineteen-twenty-nine was a 19th-century event in the midst of a 20th-century society. The next government of the United States discovered that its prime duty was to provide something like full employment, not only at the cost of balanced budgets, national debts, and other fictitious bookkeeping figures, but eventually at the cost of productive efficiency and of solid money. After 1934 Americans were no longer allowed to exchange their money for gold. Most other governments did the same thing. Money was now simply worth what the government said that it was. Where the government was powerful and prosperous, as, for example, in Hitler’s Germany, this proved to be no trouble at all. Where the government was not prosperous, but very powerful, as, for example, in the Soviet Union, this proved to be not much trouble either. Money and production followed power, not the other way around. During and after the Second World War the confidence of the peoples of Europe in their governments would collapse first, the deterioration of the value of their money would follow. Surprisingly enough, economic life and even the volume of production would go on, and even rise on occasion. Journalists would write of this or that state “on the verge of bankruptcy”: no state ever became bankrupt, not even Egypt. Still, after the end of the Second World War only a few currencies remained solid: the dollar, the Swiss franc, and old coins of gold. The first had become the predominant international currency, because of the power of the United States and because of the prestige of her productivity.

This is still largely true today, but at the same time the solidity of the dollar itself has begun to crack. After 1966, for the first time in history, American money was no longer exchangeable into silver equivalents. Silver disappeared from American coinage that was struck, or in some cases pasted together, of cheaper and baser materials. The American people were told that all of this meant nothing, which they no doubt believed, though they did not act accordingly. The relatively moderate inflation of prices and costs that has marked their economies for thirty years now began to accelerate. The dollar bills themselves, for the first time in history, became dirty, soiled, and torn, since they were passing from hand to hand with increasing rapidity. They were no longer folded and handled and kept with a kind of anxious respect; they began to resemble the soiled and ragged and inflated money of Europe after the war. (When the finances of a state are sound her money is crisp and clean.)

In all probability this is not a superficial phenomenon. It is no longer explicable—reasonably, that is—let alone controllable, by professional economists. The raggedness of money reflects, as a matter of course, the raggedness of government. The debasement of coinage has always reflected the debasement of governmental authority. Now the purposelessness of money is beginning to catch up with the purposelessness or society.

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At the beginning of the century not only the value of monies seemed permanent: so did the possession of goods. Private property and public property were two different things, both of them protected by the strictest of laws. The state did not and could not interfere with private ownership. There were a few exceptions. Taxation was slowly increasing because the role of government was growing: the movement toward the welfare state had begun. With the development of industry and of urbanization the primacy of the public domain had to be asserted, here and there, especially over real estate. None of these exceptions counted, as yet, very much. The sense of their encroachment on private wealth was counterbalanced by the permanence of things that the latter could buy. The more one paid for some things, the more lasting they were. The solidest of bourgeois built the solidest of houses, with foundations twenty-feet deep and walls two-feet thick. The most expensive motor-car or overcoat was the longest lasting.

Much of this was true of the United States as well as of Europe, but there was a very important difference. This was due to the deepseated restlessness of the American character. Americans, who are possibly the least materialistic people in the Western world, all of the clichés to the contrary notwithstanding, were moving from one place to another, and they were buying and selling and exchanging their properties at a rate which to most Europeans would have seemed incredibly fast. People who exchange their material possessions that fast (while their ideas change at a much slower rate) are not materialists, far from it. At the very peak of the money age, around 1900, Americans were not individualists, either: the primacy of their social considerations dominated their individual desires. In the Western part of the United States, superficially the openest and freest portion of America, legal limitations on private property existed (for example, the right of the public domain governing the use of bodies of water) that a Western European bourgeois would have regarded as intolerable, whereas to Americans these were matters of course. Unlike Europeans, jealous of their possessions and of their privacy, Americans did not build walls around their houses, far from it. They still don’t.

These are profound matters that seldom figure in the statistics and practically never in the limited imagery of economists. They meant that even a century ago the sense of ownership, and of possession, among the American people was different from that, say, of the French. The consciousness of this most modern of peoples was different because their aspirations were different. Nor was the enormous wealth of the United States simply attributable to its prodigious production. That production was the consequence of the first mass market in history, not the cause of it. Until the Second World War more than 90 per cent of the goods produced in the United States were acquired or consumed by the American people themselves. This was a fantastic fact of success, from the consequences of which American businessmen have not yet recovered.⁴ It was made possible, among other things, by giving credit (in more senses than one) to the masses. “On ne prête qu’aux riches”—one has to be rich to be able to borrow—was a common European witticism of the pre-1914, indeed the pre-1945 world. This had no meaning in America at all, certainly not after 1920 when the shape of the American society was beginning to bulge out.

The depression changed the development of this tendency toward mass ownership not at all. True, stocks and bonds could no longer be bought on the basis of tiny down payments (not many people wanted to buy them in the 30’s anyway) . More important was the change in the ownership of industries. During the 30’s the line separating public from private properties was beginning to be washed away. Factories and corporations were no longer owned by capitalists and their families, they were governed by managers. Huge amounts of stocks and bonds, too, were no longer owned by individual investors and speculators: they were managed by financial bureaucrats for impersonal institutions and pension funds. During the Second World War the government became the single largest purchaser of American production. This practice continued after the war. Whether General Electric under Eisenhower was nationalized or not made as little difference as whether Krupp under Hitler was nationalized or not. Both depended on government orders, on government regulations; their employees had to be screened and supervised by the government. By 1960 perhaps as much as 30 per cent of American industry was dependent upon government orders, in certain industries more than 90 per cent. Business leaders would, on occasion, still make speeches extolling the virtues of the American private-enterprise system—a tribute to the national habit of self-deception, no doubt. Others would call this “people’s capitalism” instead of recognizing what it was, and still is: a peculiarly American form of socialism, corresponding to American democracy.

At any rate, this American kind of national socialism, unlike the Soviet one, made for an unprecedented kind of affluent prosperity. The most important development in the lives of people after the Second World War was the mass consumption of new goods. Standardized mass production and standardized mass credit, helped along by the inflation of wages, made it possible for hundreds of millions to acquire and to consume things that they themselves had not thought of but a few years before. Around the turn of the century, the millionaire J. P. Morgan, in a somewhat wooden witticism, said something to the effect that a person who had to think what a yacht would cost couldn’t afford it. By 1955 the reverse was true: the kind of person who was thinking of having one would go ahead and afford it. In this new, and increasingly classless, society thousands of truckdrivers owned power boats if not yachts, the wives and daughters of plumbers went on winter cruises in the Caribbean. Millionaires now counted for much less than before, not only because of inflation and taxation but because in the new credit economy earning capacity—which for the overwhelming majority meant regular employability—counted far more than the possession of wealth. More important, this became a worldwide phenomenon. After 1950 mass production, mass credit, the welfare state, made it possible for the societies of Western Europe to move in the same direction. A few years later it became evident that even the miserable Communist states of Eastern Europe would not exempt themselves from this kind of development.

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By the 1960’s a new kind of disillusionment was setting in. People sensed that their newly found prosperity was somehow insecure, even though few of them knew why. Inflation was a tangible—or, rather, intangible but nonetheless visible—villain, especially in the United States. The economists and the financiers who had now converted themselves into preachers of the virtues of controlled inflation found that the controls no longer worked (if they ever had). Their mental constructions were upside down, as usual: inflation was a consequence, much more than it was a cause, of this widespread feeling of instability and mistrust. For there was more to inflation than the sinking value of money. The inflation of society led also to the inflation of goods, not only of their quantity but of their quality too—they have become impermanent. Unlike the situation of even a few decades earlier, the high cost of a certain item was now due to its relative rarity rather than to its durability. This was true not only of clothes but of machines and houses. It had something to do with the decline, and in some places with the virtual disappearance, of individual craftsmanship. It had much more to do with another subtle transmutation in the sense of ownership. On paper more Americans owned houses and cars by the 1960’s than ever before. In reality they were renting and discarding them. Long before they paid off the last installments of their mortgages they would move away. Millions of people still found it more satisfactory to buy houses than to rent them. But since they were moving every few years, their sense of ownership was less intense than that of people who have been living in the same rented house or apartment for a long time. In Europe, too—indeed, on both sides of the Iron Curtain—the use of a company automobile for a businessman was quite a satisfactory substitute for its ownership.

In short, the consumption of things has become far more widespread and important than their possession; and the previously clear distinction between the ownership and the rental of properties has begun to blur. Veblen, who castigated the wealthier class of Americans for their “conspicuous consumption” sixty years ago, was not too far wide of the mark, though he was a little premature. The principal instrument of keeping up with the Joneses—or, rather, of thinking of how to keep up with the Joneses—in Veblen’s time was the conspicuous possession of things: their conspicuous consumption came only later. At the end of the 60’s the meaning of the adjective “conspicuous” paled. Consumption remained the overwhelming reality. But this was different from materialism, for the very act of consumption involves the disappearance of matter. (Eventually it would also mean the narrowing of choice: but that is another problem.⁵)

You may expel nature with a pitchfork but it comes back to you, Horace wrote: no longer a very telling metaphor but a true one nevertheless. The transformation of society meant the transformation of goods and the transformation of money:⁶ a credit-card economy in which most transactions were handled on paper. But even people who were habitually taking advantage of this felt unsure about it, in the long run. No matter what governments said, and no matter how they tried to keep its price down, gold remained attractive to a minority of hardheaded skeptics because it was secure. Already during the Second World War the price of gold outran even that of the dollar on the black markets of the world. After the restoration of their battered currencies most Western European governments, in the late 1950’s, thought it best to insure confidence by allowing their people to exchange currency for gold. The United States government did not do so, but it is very questionable whether it will for long be able to maintain confidence in its money if inflation were to go on and on.

At any rate, since the late 1950’s the most spectacular rise in prices has been for things that were not new but old: old paintings, old houses, old furniture, old artifacts—things that were irreplaceable and, therefore, permanent.⁷

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This reflected something that was more than mere snobbery; it had, also, little to do with nostalgia or with the veneration of the past. Inflation, as I have said, means that when there is more and more of everything it is worth less and less. “It is as simple as that.” Yes—but this simple reaction takes place in the most complex organ of the most complex organism in the entire universe: in the minds of human beings. The condition that what happens is inseparable from what people think happens is even truer in the “factual” and “quantitative” science of economics than anywhere else, since the value of material is not only inseparable from, it is determined by, what people think its value is. This has always been so. But the effects—including all kinds of side-effects—of this truth are gaining momentum as people come to recognize its existence. That ways of thinking may not only modify but transform hard material economic facts would have seemed nonsense to people sixty years ago, to Americans even later. By the late 1960’s a book entitled The Money Game, attempting to prove the commonsense truth that people are buying and selling stocks less for reasons of security and gain than to play and win, was a national bestseller. We may yet witness the most momentous transformation of economic life in perhaps a thousand years, involving a transformation of the meaning and of the function of money as well as of the welfare of peoples, eventually knocking the bottom out of the still prevalent dogmas of economists with their hopeless materialism. I say “eventually” because probably decades will pass before these new doctrines and new theories appear, having crawled up through the labyrinths of the meritocracy, following events at a hopeless distance, expostulating and explaining them when it is already too late. They almost always do.

We have already begun to experience some of the consequences of this mutation in our economic consciousness. Consider, for example, the extraordinary meaning of mass tourism in the relations of peoples. In this age of so-called “industrialization” there are kingdoms and republics in Europe, and states in the Union, whose principal source of income is tourism. This has become true of industrialized republics such as Austria and of the very cradles of American industry, the New England states. Entertainment, vacation, recreation have become more and more important in the economies of people and of the welfare state. The production of consumption has become more important than the consumption of production. There is every reason to believe that this tendency will continue.⁸

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But in a world where consumption has become most important, all kinds of new problems arise. On the one hand, the sense of the pervasive impermanence of most things may destroy the prospects of all civilized life. On the other hand, it is most unlikely that the mutation in economic habits would amount to a mutation in human nature: that consumption would ever become a satisfactory substitute for possession. In this sense the recently fashionable terms “acquisitive” or “affluent society” are off the mark. “Acquisitive” means an eagerness to possess and to keep; “affluent” means a kind of prosperous ease that flows from the possession of considerable personal reserves. Neither of these adjectives fits the new millions of buyers and renters and consumers who discard things almost as fast as they buy them. Indeed, this waning interest in durable possessions, together with their—less conscious—frustration with the pleasures of consumption, is characteristic of the “new poor”: men and women and children whose poverty is not material but social, psychic, spiritual.

While large regions of the “old” poverty still exist, everything indicates that the “new poor” are becoming more prevalent. Increasingly, their poverty has less and less to do with their material conditions. Millions of people are now aware, often painfully, that they do not live by bread alone. And yet this is happening at a time when the mechanical interpretation of life and materialist interpretations of human nature are most widespread. This is no longer a paradox. It is a ridiculous condition of the modern intellect. Centuries ago there was often a real connection between the rise of a few pennies in the price of flour and the peasant riots that ensued. No such relationship between economic “causes” and “effects” exists in the recent history of the Western world; none of the revolutions in the 20th century is attributable to economic “causes.” And yet today not only econometricians but political scientists and certain opportunist historians believe—or, rather, pretend to believe—that to all social wisdom the mathematical computability of economic “facts” is the key. It is high time that people recognize the antiquated character of this intellectual absurdity: for the categories of materialism and of its offspring, modern economics, are not “facts” but mental constructions, as indeed are most things in this world, our world.

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¹ Except in the United States during the Civil War.

² The export of gold was forbidden (as also in the United States, from 1917 to 1919).

³ Especially when such inflationary crises were followed by an intelligent restoration of the currency, as in Germany in 1924 and in 1948.

⁴ By this I mean: Americans were, and still largely are, producing for Americans. The conditions of their production (high wages), of their prices (dependent upon the expense accounts of an enormous bureaucracy of merchandising), and of their salesmanship (talking in American accents, to American men, women, and children) are not advantages, they are handicaps on a world market.

⁵ Deeply impressed with the privations of the 30's and with the bureaucratic cruelties of the modern police state, George Orwell in 1947 prophesied that in 1984 people would be reduced to mass poverty, they would be ill-fed, rundown. The opposite happened. Halfway to 1984 prosperity has increased, and the danger is not, as Orwell predicted, that entire generations of once prosperous countries would no longer know such things as wine, oranges, lemon, chocolate. It is, rather, that traditional tastes and table habits are about to be washed away by a flood of frozen and synthetic foods, available to us every hour of the day. It is true, on the other hand, that fresh vegetables, unfrozen meat, unprocessed and unchemicalized foods may become an expensive rarity. The mass distribution, even more than the standardized reproduction, of goods is beginning to reduce their variety. Therefore, increasing affluence may no longer mean increasing choice.

⁶ In a society where most people were engaged in administration, not in production, costs of administration were not only passed on to consumers but this was now openly admitted. Thus, in the early 1950's, I was amazed to read how the president of a large American cigarette manufacturing company explained to a Congressional committee that the rise in the price of cigarettes was due to “increasing production and advertising costs” (my italics). No one questioned this argument which would have made our grandfathers turn purple with rage.

⁷ Irreplaceable: but not only because of their historical uniqueness. By 1960 the price of a good 1900 reproduction of, say, a Louis XVI table had risen, sometimes to fantastic heights—probably because people knew that with the disappearance of craftsmanship even such reproductions were no longer reproducible.

⁸ The original meaning of economics was “knowledge of the household,” oikos meaning “house” in Greek, a word that still lives on in the German Wirtschaft which means both “economics” and “housekeeping.” Over the last two hundred years a change in this meaning has taken place. Because of the availability of statistical information and because of the invention of modern accounting, modern economic information has become more accurate—but only up to a point. In the first place, after a while it became evident (or, rather, it should have become evident) that the increasing accuracy of economic information did not at all mean a corresponding increase in our economic knowledge. In the second place (and this is more important), during the 20th century the accuracy of economic information itself began to decay because of its inflated categories, such as the “national debt” which in the 20th century has become not much more than an abstract item within intra-national accounting. Certain international financial transactions have become abstract, too, in the sense that the movement of monies that they register are often transfers on the level of bookkeeping, not physical transfers from one country to another. This does not mean that they are meaningless, but it does mean that what happens in such transactions is something quite different from what we are told happens and that, as a result, some of the consequences of these transactions may be different, too, from what people would expect. Or consider the famed Gross National Product—what does it mean, especially for societies where most people are no longer employed in production? The two martinis that an advertising executive buys for a winsome secretary at lunch, the junket of a kolkhoz secretary for a carouse in Moscow, they all figure in the computation of Gross National Product. As in the vocabulary of politics, these gross corrupt terms no longer fit realities. To paraphrase Tocque-ville, a new kind of science of economics is needed for a new kind of world.