Inflation is the worldwide phenomenon in the sense that it involves government's policies of sabotaging the value of money in the economic system. The prospect for confiscation of value of through monetary inflation reduces the intrinsic advantages of holding claims dominated in money. And it creates a distortion in favour of real assets. An effective monetary constitution (which exists nowhere in the world) that would guarantee stability in the value of monetary unit would work miracles, whether measured against criteria of liberty or efficiency.
This paper is about government's sabotaging of the market mechanism through inflation and confiscation of the value of money.
Inflation destroys the fabric of society. . . According to enemies of the free market system: “the best way to destroy the capitalist system is to debauch the currency. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose".
In his book,"Philosophy of Money", Georg Simmel explains that: "The purely monetary connection between ruler and subject demonstrated the absence of any other relationship. The continuous depreciation of currency by rulers was an appropriate technique within such a relationship; for these methods, which give all the benefits to one side and the entire loss to the other. This has been traced to the fiscal policy of rulers who use the royal prerogative of coinage as a means of taxation without concern for the consequences of devaluation."
What inflation does is this:
- The government issues new money; that is, it raises funds without taxing or borrowing. To the government, this is pure gain. As the new money works its way through the economy, prices rise. The first receivers of the new money gain at the expense of the later receivers. Inflation, then, confers no general, social benefit; instead it redistributes the wealth in favour of first comers. . .Those stuck with the loss include fixed income groups; ministers, teachers, people on salaries, those on fixed money contracts made before the price rise, life insurance beneficiaries, retirees, landlords with long term leases, bond holders and other creditors, and those holding cash.
- Business calculation becomes more difficult. Prices do not change uniformly or at the same speed; it becomes harder to separate the lasting from the transitional, to guess the demands of consumers. Business accounting may seriously overstate profits, may even consume capital while presumably increasing investment.
- The sellers market leads to a declining quality of goods and services, since consumers resist price increases less when they are concealed by less quality.
- Quality of work declines as people go for "get rich quick" schemes and scorn sober effort. Thrift is penalized and debt encouraged, since debt is paid off in lower valued money.
- Families and communities continue to fail. The media emphasizes corporate misdeeds over government corruption even though it is hard to find any reason to trust politicians or government bureaucrats. At least not all chief executive officers are crooked, something one cannot be sure about in government !
- By a continuing process of inflation, governments confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily. And, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but also at confidence in the equity of the existing distribution of wealth.
- Inflation lowers the general standard of living, as it creates an atmosphere of prosperity. More importantly, over time it destroys the fabric of society, it creates morally sloppy society and hence the process of wealth-getting degenerates into a gamble and a lottery...
- Inflation opens up the road to serfdom; it leads to planned society in which dominant class has both economic and political power. It leads distortion in the markets that a class of capital-controllers are in power- sabotaging the price mechanism or the free market economic system.
Inflation is a bad; in the sense that it leads to distortions and problems in an economy. It distort the functioning of the price mechanism (informing, incentivising, and rationing functions)in the economic system. Thus, inflation includes losses to savers, losses to people with fixed incomes,losses to taxpayers,confusing price signals,speculation crowding out production,reduced attention to productivity,wastage of resources in the economy.
In sum; "the abandonment of the gold standard made inflation possible for the welfare statistics to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value....",(Alan Greenspan). "The Central Bank is an institution of the most deadly hostility existing against the principles and form of Constitution",(Thomas Jefferson).
References:
1.http://www.safehaven.com/article-7668.htm
2.http://goldprice.org/bob/2009/01/gold-and-government-fiat-token-turmoil_09.html
3.http://www.marketoracle.co.uk/Article10319.html
4.http://www.marketoracle.co.uk/Article1143.html
5.http://www.lewrockwell.com/orig5/crispin4.html
6.http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html
7.http://www.pbs.org/wgbh/commandingheights/shared/pdf/ess_inflation.pdf