Let’s say you’re a revolutionary looking to overthrow capitalism. You’ve got it all figured out when it comes to grabbing power. But you’re still not sure how to stamp the market system out, forever, once l’état c’est toi. What is to be done?
Print, print, print. That was Lenin’s answer. Or at least what John Maynard Keynes thought was Lenin’s answer. In his post-Versailles treatise, The Economic Consequences of the Peace, Keynes famously quoted the Bolshevik leader saying, perhaps apocryphally, that “the best way to destroy the capitalist system is to debauch the currency.” In other words, incompetent central bankers are a communist’s best friend. The idea is hyperinflation breaks down markets and breaks down classes. Business can’t plan beyond today if they don’t know what money will be worth tomorrow. And a collapsing currency turns the bourgeoisie into the proletariat overnight. That sound you hear is the revolution coming.
But it’s a bit more complicated than that. Michael White and Kurt Schuler unearthed the original Lenin quote — yes, he really did say it — in a 2009 paper in the Journal of Economic Perspectives. And let’s just say he wasn’t so sanguine about capitalism withering away. See, Lenin thought hyperinflation was the best way to destroy capitalism after the revolution, because the revolution wouldn’t be enough itself. The profit-motive would survive even if the bourgeois state did not — and even if the socialist state tried to outlaw it. The only way to kill the profit-motive was to kill profits. And that meant killing the very concept of money itself. Here’s how Lenin described how he was trying to do this back in 1919 (emphasis added):
Hundreds of thousands of ruble notes are being issued daily by our treasury. This is done, not in order to ﬁll the coffers of the State with practically worthless paper, but with the deliberate intention of destroying the value of money as a means of payment. There is no justification for the existence of money in the Bolshevik state, where the necessities of life shall be paid for by work alone.
Experience has taught us it is impossible to root out the evils of capitalism merely by confiscation and expropriation, for however ruthlessly such measures may be applied, astute speculators and obstinate survivors of the capitalist classes will always manage to evade them and continue to corrupt the life of the community. The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort.
Already even a hundred-ruble note is almost valueless in Russia. Soon even the simplest peasant will realize that it is only a scrap of paper, not worth more than the rags from which it is manufactured. Men will cease to covet and hoard it so soon as they discover it will not buy anything, and the great illusion of the value and power of money, on which the capitalist state is based will have been definitely destroyed.
This is the real reason why our presses are printing ruble bills day and night, without rest.
Well, maybe. Or maybe the Bolsheviks were printing ruble bills day and night, without rest, because they had to. They needed money to fight their civil war, but they didn’t have any thanks to an economy in free fall and a Western embargo (and military intervention). And that left the printing press. So there’s something of Lenin trying to turn economic lemons into ideological lemonade here.
But there’s still something to the idea that destroying money destroys democracy and capitalism like nothing else, right?
Actually, no. Take Weimar Germany. Everybody knows you can draw a straight line from its hyperinflation to Hitler, but, in this case, what everybody knows is wrong. The Nazis didn’t take power when prices were doubling every 4 days in 1923– they tried, and failed — but rather when prices were falling in 1933. See, money is just memory. That’s how Minneapolis Fed president Narayana Kocherlakota put it back in 1996, and he’s right: it’s our way of keeping track of who has what and who owes what. Hyperinflation destroys one set of memories, but we can always use or create others. We can resort to hard currency or scrip or barter instead. In any case, our market mindset is still there, even if our savings aren’t. Deflation, though, doesn’t destroy our memories. It leaves us with nothing to remember. Falling prices mean falling wages — which means rising rising unemployment and rising debt burdens. It’s a vicious circle down into mass bankruptcy. And mass bankruptcy has a way of making people unhappy enough with capitalism that they want to give something else a try.
In other words, incompetent central bankers really are a communist’s best friend — but only central bankers who print too little money. So, would-be revolutionaries, forget about debauching the currency. The best way to destroy the capitalist system is to worry about inflation during a depression.