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.

 

Related search:

  • deflation fusion 2014
  • inflation rate

40 Responses to Why LENR will Lead to Massive Inflation

  • JOB001 says:

    Let’s look at goods supply/demand side vs money. Prices reflect energy cost(mined costs are mostly energy now). People are enabled to supply their own needs with cheap high IQ robots and 3D printers and cheap LENR energy.
    LENR reduces energy cost and leads to massive deflation of prices. This leaves Government stranded with reduced tax basis and large debt. Governments default, reduce size, out-place government employees who are better off as they become self sufficient(productive/wealthy) due to cheap materials and energy.
    People don’t need money when productive and self sufficient. Thus the infinite recursion paradox caused by incorrect starting assumptions.
    Money isn’t required if robots gift robots and 3D printers and human needs are met. Shocking!

    • jennifer says:

      Silly question here how do people get the robots and 3D printers in the first place? Does somebody give them away. No they use money to buy them so it would still be required. Many people would not be self sufficient. Large numbers of the outsourced people would end up on the street or sleeping under the bridge. Worse some of the ones with all that time on their hands would use the robots and 3D printers to build weapons to use on the rest of us. That means we’d need a bigger police force than ever before. Energy is only a part of costs. Unfortunately it’s hard to determine how much of a part it is because costs are inflated by taxes, etc.

  • italiano says:

    please, with your name tell your nationality (Italy, Germany, UK, etc)

  • AlainCo says:

    You seems to rediscover what is a growth period.
    Just look at what happened in the 1960s, what happend to Korea recently…

    It is not the evil steril inflation, of worse the stagflation, or worser the current wage deflation, that protect the rich lazy and kills the active agent…

    if you what to understand and enjoy what is really growth, how it kills the economic rent, the status quo, the lazy money, read : http://www.thenextconvergence.com/

    what is sure is that people will be able to consume more from their wages, since it will need less work… or just have more time to consume…

    classic…

    the only who will lose will be the one trying to keep their business as usual… they will be overflown by inflation of others getting richer… it is well explained in the next convergence…

    • jennifer says:

      As I try to demonstrate it isn’t that simple. I don’t necessarily buy the convergence claims. What you’re saying is that people will get paid less for work which sounds like a prescription for more poverty to me which is what seems to be happening now in the USA. Another problem is that inflation can sometimes be channeled into one area of the economy (such as real estate prices in the USA which have no more relation to reality). If you’re right we’ll be heading for massive social and political unrest caused by growing poverty.

  • richbo says:

    This author really has no clue about economics.

    • atanguy says:

      What clue do you have yourself? Be interesting to know…

    • Bernie Koppenhofer says:

      Who Does? The Fed? Congress? IMF? We need new economic thinking. The effects of technology on our economy is a good place to start.

      • jennifer says:

        I agree 100% we need new economic thinking. The only intelligent economic thinking I’ve seen lately has been from Nassim Nicholas Taleb. My guess is we’ll get new economic thinking after the new economy arrives.

  • Brad Arnold says:

    The claim that lower energy prices will cause the value of money to decrease is extraordinary, and is easily proven wrong. Increased prices for oil are inflationary, not deflationary. Energy is like a value added tax, which is inflationary, not deflationary. Deflation increases the value of money.

    Put another way, when goods and services are less expensive, then a dollar goes further, which is deflationary. If your dollar goes further, it is worth more, not less.

    • jennifer says:

      It is an extraordinary claim but history seems to back it up. Take a look at the inflation calculator the dollar’s value has been falling even as the cost of many expenses such as food falls. The effect isn’t that simple. History proves you wrong. The effect isn’t that simple. If you were correct Brad, today’s money should have more buying power it has less. Maybe you should pay more attention next time you go to the supermarket and less attention to economics text books.

      • Jim says:

        “If you were correct Brad, today’s money should have more buying power it has less.”

        It would have more buying power, if we didn’t also have massive inflation due to our government printing more money every year.

      • Bernie Koppenhofer says:

        This might be off base a little but to reinforce what has happened since 1973: Productivity, the result of technology, has increased 80% since 1973, while the mean hourly wage has increased 10%. To that person buying goods at 2012 prices with 1973 wages he might say technology has caused inflation.

      • TPBurnett says:

        I have to side with Brad on this one. Inflation is now and has always been because of the artifical expansion of the money supply by the “Federal Reserve”. Energy cost effectively reduce our buying power by taking a big cut of what we earn. But aside from the value of money, the real test is how much goods and services can you get for what an hour of your labor earns you. Cheaper energy means that we can all produce more with less effort on our part. We all become richer. In essence, cheaper energy makes the pie bigger of which we all get a piece.

        • jennifer says:

          It’s hard to say. Making the pie bigger does not automatically mean everybody gets a bigger piece of the pie. Many factors affect the cost of goods and services. Right now a lot of Americans have found they have far less buying power even though they have more money. Simply assuming that new technology will make things better is wishful thinking.

        • Bernie Koppenhofer says:

          Are you saying we will not have inflation if we eliminate the Fed? History simply does not support that. You said, “Cheaper energy means that we can all produce more with less effort on our part. We all become richer.” Tell that to the “mean” wage earner in the US since 1973, 80% productivity, 10% wage growth. I think Jennifer is saying something is wrong and I think she is right to look at technology/productivity, something is not working!

    • AlainCo says:

      You are right that energy increase price and cause inflation, but the result is price inflation and wages deflation… people say we have inflation, but we see also deflation of non-energy-taxed prices, like wages…

      on the opposite as you say, if energy price decrease, price decrease, but it increase consumption, thus production, thus work market get to inflate, leading to price inflation…
      it is not EVIL, unlike the economic rent owner says today, inflation is good for workers and entrepreneurs, if quite stable as it is during growth.

      what you call inflation is price inflation, with no growth, the stagflation…
      today we are also in deflation on some sector of the economy, especially the goods consumed by upper middle class… food is inflated, not TV screens. Current situation is terrible (at least in europe, where germany cause deflation in the rest of europe to keep the value of their retirement fund for theiy aging population… which is suicidal since they will die with the rest of europe that is deflating hard).

      Anyway what ever will happens when LENr reduce energy price, it will be good, like in the 60s when modernization of life allowed people to have more time for leisure, and more machine to help them work more efficiently, and less long, for more money, and more safety.

      • Bernie Koppenhofer says:

        AlainCo…….you said, “Anyway what ever will happens when LENr reduce energy price, it will be good, like in the 60s when modernization of life allowed people to have more time for leisure, and more machine to help them work more efficiently, and less long, for more money, and more safety.” I am sorry, but in the US, this is simply not true. I grew up in the 50′s and almost all families had one “bread winner” We had a growing economy with increasing living standards. Now it takes two people in each family working and they are still struggling to increase their living standards, at a time when technology/productivity has increased dramatically. Jennifer is right, the current economic thought does not match reality, something is wrong, big time!

        PS Of subject a little, but it is my opinion two people working in the family has mad a big negative impact on our society.

  • Yordan Georgiev says:

    If energy makes up 5-20% of the price of everything we buy how on earth the decrease of energy prices brought up by LENR would raise the prices and lead to inflation !?

    • jennifer says:

      BY making stuff worth less which is what happens when costs fall. It is a historical fact that inflation has increased with technological innovation. It is something we have to pay attention even if we don’t like it.

      • Jim says:

        “It is a historical fact that inflation has increased with technological innovation”

        It’s also a historical fact that as my cat ages, my left knee hurts more. Therefore my cat’s age causes my left knee to hurt.

        No, sorry but all you’ve done is promote a fallacy. The fact that both occurred doesn’t mean one caused the other. You might as well claim that inflation caused technology increases.

        Inflation is caused by more money being created. There are plenty of examples of countries experiencing runaway inflation due to runaway printing of money. Zimbabwe is a great one for that.

        Technology advances, and the removal of labor, simply means cheaper prices, not higher. If anything, it would cause a deflation, not an inflation. But the other part of that is with cheaper energy costs comes a stronger economy. Energy runs the economy. When energy costs are high, the prices of goods and services go up because energy is a direct feed into everything.

        When corn prices go up, everything involving corn costs more. Same with energy, and energy is needed for everything. Not just transportation but manufacturing, storage, gathering, even selling at the final location.

        Lower the price of energy and you’ll see lower prices for everything, not to mention a huge increase in economic activity, as the money that went into energy costs go into new directions.

        • jennifer says:

          Cheaper energy might create a stronger economy. I stand by the argument. Money loses value as technology progresses. One reason for that is that technology makes it easier to create more money. The removal of labor presents a major problem because it implies people are no longer being paid to do work. I think we’re heading to a major economic upheaval because of technology and some of its results will not be pleasant.

        • Bernie Koppenhofer says:

          Jim….you said, “as the money that went into energy costs go into new directions.” You are right, but where is it going? Where has the money gone with our 80% productivity gains since 1973? Reality has told us, for some reason, it has not gone into increased living standards.

  • Bernie Koppenhofer says:

    Great article, who is jennifer, would like to read more of her thoughts.

  • OGMOGMOGM says:

    You cherry pick the non gold standard time… Look at inflation from 1800 till 1900. and see if something similar is possible. yes ohh wait, there was general deflation in that period, while technology changed things…… whoops didn’t I blow up your whole article?

  • Farlie Paynter says:

    If something loses 100% of its value its lost everything, to lose 200% is a negative number? I guess in Canada, math is different.

  • astralprojectee says:

    I hve to disagree with you on this one. Inflation happens when money is overly printed by the federal reserve.

    • jennifer says:

      It’d be nice if that was the only cause of inflation. Inflation is caused by many factors federal reserve policies are only one of them.

  • Gediminas says:

    Sirs,
    Don’t do such rush ;) If LENR will be proved, A. Smith and his invisible hand will do all the job ;)
    Nickel will be in good price, like gold now or maybe twice of gold price. Oil will drop in price. Burn of oil will be prohibited. Wealth of some nations slightly will change as well. In this case I’m care about usa dollar value, their possibilities so easily print greenbacks and pass fiscal kliff ;(

  • Tip Parker says:

    Jeniffer, as you know coincidence is causality. According to Modern Monetary Theory, the federal government creates dollars when it pays out more than it receives from taxes. This is called running a “deficit”, though that is a misleading term. The annual deficits add up to what is called the federal “debt”, though that too is misleading. The federal debt is actually the number of new dollars the government has created since 1790. In 1913, the debt, or total amount of money the government had created was $2,916,204,913.66. By 2010, it was $13,561,623,030,891.79. During those years, the money supply grew to be more than 4,520 times what it was in the base year. Inflation was about half of that.
    As a minor point, your statement that the dollar lost more than 200 percent is not right. It can only have lost 200 percent or the total amount of its value. Your 200 percent figure could only be right if the value of the dollar had become negative.

    • Tip Parker says:

      Correction, the dollar could have only lost 100 percent of its value without going negative.

    • jennifer says:

      See the response to the above question. There are also some economists that think the rate of inflation is much higher than the official rate. The low rate is for all prices. Unfortunately there are many prices inflating at a much higher rate than the rest of the economy (real estate and gasoline). One interesting problem is that individual buying power in some areas (housing) as it increases in others (electronics, food). The deficit is only one of many factors that affect inflation.

  • astralprojectee says:

    I think your totally wrong on this one Jennifer. Inflation is more likely due to the federal reserve printing more money than it should. If anything cold fusion would make money more valuable. In simple terms, you will be able to buy more things at a higher quality after cold fusion. That would make the value of money go up. Unless the federal reserve ends up printing even more money.

    Peace.

    • jennifer says:

      I think you over estimate the power and influence of the Federal Reserve. What you describe would make the value of money go down because things would be worth less. Instead of more buying there would be less.