Why LENR will Lead to Massive Inflation
The widespread adoption of low energy nuclear reaction (LENR) or cold fusion might completely destroy the value of money. The reason for this is history or rather economic history.
History teaches us that as technology advances inflation increases and money loses its value. Take the case of the US dollar $100 in 1913 is the equivalent of $2,325.46 in 2012 according to the US Bureau of Labor Standards’ official inflation calculator. That’s right the US dollar has lost more than 200% of its value in the past century. Why?
One reason might be technology as goods and services get cheaper because of innovation money loses value. As technological advances have increased over the past century inflation has increased despite the efforts of government to control it.
So how does technological innovation drive inflation anyway? The most likely answer is that money can be viewed as a measure of the value of labor. Technological advance greatly increases the earning power of the individual and greatly reduces the cost and value of labor. As the labor and other costs associated with goods fall their value falls.
Since the value of currencies such as the US dollar is partially based on the value of the goods and services in the nation the value of the dollar falls. As technological advance has sped up so has inflation. $100 in 1952 would be worth $868.76 in 2012 dollars.
Obviously there are many other factors at work here but technology seems to be one of the defining factors. That means LENR has some very interesting implications for the economy.
Since LENR would be far cheaper than existing energy sources it will greatly reduce the cost of many goods and services. That means it will also greatly reduce the value of money. Now this doesn’t mean that large numbers of people will be reduced to poverty because their buying power will increase. An interesting phenomenon we’ve witnessed over the past fifty years has been greatly increased buying power on the part of the individual.
Yet it has some powerful economic implications because much of the prestige and power of modern governments is based on their ability to issue money. When the value of money declines the power and prestige of government declines, if the value of money falls to near zero what influence will government have left.
That doesn’t mean money will go away (as Star Trek fans seem to believe) because it is too value a tool as a measure of value. Instead money will probably be reduced to the status of an accounting tool, a means of estimating value and little more.
If money gets reduced to a mere accounting tool (simply a value of measure) something that seems to be happening in today’s world that will have profound implications. After all many of us assess our value and worth in money. Our lives revolve around it.
One interesting outcome might be that many people’s wealth will be destroyed because it is based on consumer or material goods that could lose a lot of their value. Another might be that people may turn to a traditional commodity such as gold as an alternative to money.
Any effort to return to a gold standard will probably be a failure because new energy sources such as LENR would undermine the value of precious metals as well. Since it will be far cheaper to mine gold there will be far more gold. If people start hoarding gold or using it as money there will be more incentive to mine gold. This is what happened in the 1980s the last time gold prices were high.
The situation might be made worse if the claims that LENR can be used for transmutation of elements are true. Individuals could manufacture large amounts of precious metals and flood the market if these boasts are real.
What this means is that we’ll have to radically change our thinking about money because our economy will be radically changed. Much of the value of our present money is based on the scarcity of energy, just as money’s value used to be based upon the scarcity of resources such as food, transportation and metals. When technology made food and metals abundant those resources lost much of their value. If LENR is successful it will do the same thing to energy.
Where this will lead is hard to see but I don’t think it’ll bring an end to the market. Instead the market will probably become more powerful because low prices and the abundance of money and resources will make it easier for people to buy and sell. There will be more economic activity which will generate even more money. In other words everybody will be able to participate in capitalism for the first time in history which will lead to a radically different society.
The technological revolution unleashed by LENR will lead to an economic revolution that will transform the economy and our lives. We’ll see this inflation in the form of greatly increased inflation and the growing power of the market over our lives. High inflation usually leads to massive amounts of speculation and financial activity that drive the market. Increased financial activity generates more credit and debt which increases the size and scope of the economy even further.
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