Inflation is Theft (and you are getting ripped off)

Written by Trey Sellers

Over the past century, inflation has taken root in peoples’ minds as an inevitable fact of life. Inflation is seen as a monetary phenomenon that must be kept in check and controlled as part of managing the economy, a task that should be left to the experts. This fallacy is perpetuated by a barrage of propaganda that emanates from governments and central banks in an incessant attempt to conceal what is really going on. In reality, inflation is deliberately created as a means to siphon off the wealth of the populace to the benefit of those in power.

What is Inflation?

To understand how this confiscation of wealth takes place, we must first come to terms with the definition of inflation. It is commonly believed that inflation refers to an increase in the general price level of goods and services in the marketplace. However, this is only partially correct. Rising prices are, in fact, merely a consequence of an increase in the supply of money, which is the true definition of inflation. Prices rise because as the money supply grows, each individual currency unit loses a portion of its value and therefore has less purchasing power. Some simple math can illustrate this devaluation.

Let’s assume the total stock of money in the United States is $10. This would mean that $1 is equal to 1/10 (10%) of the total supply of money. If we double the money supply to $20, our $1 bill is now only worth 1/20 (5%) of the total supply of money. By doubling the money supply, we have cut the value of $1 in half. This loss of value translates to a loss in purchasing power such that a hat that used to cost $1 now costs $2. So, in order to receive the same real value for selling the hat, the hat store must raise its price. It’s important to realize, though, that the real price of the hat, in this case 10% of the money supply, did not change. Although this example oversimplifies a complex market dynamic, the basic principle holds firmly in the real world economy.

This may not seem like anything to sneer at, until you consider the time delay that occurs between the new money creation and the rise in prices. As the new money works its way through the system, prices gradually rise toward an equilibrium that accounts for the increase in the money supply. This natural time lag between the increase in the money supply and the rise in prices means that those people who receive the new money first benefit greatly, as they can spend or invest it now, at today’s prices. On the other hand, by the time the new money reaches someone like you or me, prices have already risen, and the loss of purchasing power of that new money has already occurred. In this way, inflation acts as a hidden tax which punishes responsible savers and funds the exuberant growth of government that so severely threatens individual liberties.

With the presence of this perpetual thievery, it’s no wonder the average American is struggling. Families can no longer support themselves on just one income. Americans are now working longer and harder than ever and are faced with ever increasing food, energy, and health costs. Their savings are eaten away as the value of the dollar is eroded, forcing retirement later and later in life, if at all. Meanwhile, government has expanded unrelentingly, seizing more and more control over every aspect of our lives.

Life with a Strong Dollar

As a result of the pervasive existence of inflation in everyday life, it may be hard for some people to imagine American life without it. The fact is that a continually strengthening currency can create an environment of ever-increasing standards of living.

As a currency strengthens, prices fall, making it much easier to afford both necessities and luxuries. This, coupled with a free market that brings cheaper, better products and services to the marketplace, makes it cheaper to live. The practice of saving is rewarded and retirement becomes easier to attain. As food, energy, and health costs abate, more people are able to afford all three. When these necessities require a smaller percentage of income earned, people can spend more money on indulgences and leisure. Houses become much more affordable, and it requires taking on less debt to own a home. Imagine the house that $100,000 would get you if you were paying 1950’s prices!

In business, as investments in new technology become cheaper, production rises. Ingenuity is rewarded with strong markets filled with consumers who have excess money to spend on their products and services. Profits increase, and those profits are passed on to employees. Businesses expand, employing more and more people, who can then share in the wealth created by the new productive capacity.

It may seem surreal, but basic economics dictate that a strong currency must produce more wealth for more people. As wealth increases, so does our standard of living. In fact, practicing true free market capitalism with strong currency policies would prove to be better at socialism than socialism itself! Wealth can only be created by increasing productive capacity, not by printing money out of thin air or forcibly taking from one group to give to another.

Throughout history, governments have used the practice of inflating currency as a means to transfer the wealth of the people to those in power. In America, the elites in Washington and at the Federal Reserve, who have monopoly control over the money supply, have long enjoyed the benefits of the printing press at the expense of the American people. The value of the US Dollar has been continually depreciated for political gain. Without the ability to print money out of thin air, the federal government would be forced to rely on sound financial management in order to survive, just as every American individual must do. This counterfeiting machine has enabled a relentless assault on wealth and vicious encroachments on individual liberties in the United States for almost 100 years. A quote from Thomas Jefferson seems all too real:

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”