Inflation Is Wealth Redistribution

[ClaytonB]

Mises.org - Inflation: It’s a Wealth Redistribution Scheme -- Russell Lamberti

Inflation as a Process of Wealth Transfer

It is better to think of inflation as a process rather than a particular rate. The process starts with a particular type of monetary system, emerges in an expansion of the money supply by central bank printing and bank loans flowing into various areas of the economy, manifests itself in prices rising generally — though unevenly — higher than they otherwise would have been, finally leaving a wake of winners and losers.

This approach allows us to see inflation as not some inevitable force, but a deliberate process of wealth transfer enshrined in state policy.

How is wealth transferred by inflation? Money represents purchasing power. Creating money out of thin air, which is what central banks and commercial banks are licensed to do, confers purchasing power on those who are able to use the money first. For this new money to obtain purchasing power, it must rob little bits of purchasing power from all the other money in the economy. Purchasing power is transferred from those who hold money to those who create new money at close to zero marginal cost.

This explains how and why wealthy, creditworthy asset owners get richer while many poor people tend to resort to overconsumption and ultimately get poorer. Economist John Maynard Keynes, ironically a proponent of inflationary policies, famously noted that “by a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Money is not part of social wealth and a larger amount of money only leads to a falling purchasing power of money, while more money leads to a redistribution of the existing wealth in society and benefits the early receivers and spenders of this money at the expense of those receiving and spending it later.

- Hans Hoppe, Government, Money, and International Politics

Economically, this coalition between the state—as the dominant partner—and the banking system—as its affiliate—leads to permanent inflation (constrained only by the imperative of not overdoing it and causing a breakdown of the entire monetary system), to credit expansion and steadily recurring boom-bust cycles, and to a smooth uninterrupted income and wealth redistribution in the state’s and the banks’ favor.

- Hans Hoppe, Economics and Ethics of Private Property, ch. 3.1 pg. 93

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In principle, we're not supposed to worry about inflation because "wages also rise with inflation, too." While it is true that wages (eventually) rise to match inflation, the fact remains that inflation redistributes wealth from the late users of new money, to the early users of new money, as explained above. In the case of the very earliest user (the government itself), this is obvious -- the government benefits by the full measure of the new money which has been printed. But even the banks surrounding the government -- who facilitate the process of introducing the new money into circulation -- also benefit. They are the single largest private beneficiaries because they are able to receive the new money and make purchases with it at pre-inflation prices. Only much later, after prices have long since adjusted to the new supply of money, will you eventually receive a small increment in your paycheck. So, not only does inflation transfer money directly to the government out of your pocket (taxation), it does so in a highly regressive manner, meaning, it impacts the poor and those on fixed-incomes much more than it does the wealthy.

In fact, the wealthy are, by and large, net beneficiaries of inflation. They even tell you as much -- "Stop complaining about inflation and just go invest your money. You will earn much more than the rate of inflation while invested in the market, so stop your whining." But that's exactly the point! The poor do not have any "spare cash" to go invest in the stock-market. And even if they did, it would be peanuts, far too small to make any meaningful investment. So they bear the full brunt of inflation. The middle-class is probably close to break-even. And the wealthy -- who are indirect beneficiaries of inflationary money printing in many, many ways -- are simply robbing the country blind.

Inflation is wealth redistribution, and it is a redistribution from the poor to the wealthy. Many socialists have imagined that this doesn't matter because the State is spending the inflationary money, plus regular taxes, on the poor, so whatever impact inflation is having on the poor is completely offset by public assistance, leaving the bulk of the weight on the middle-class. But this is not true, because the middle-class are able to leverage enough of the benefits that the wealthy enjoy (such as market investments or even owning a business) to just about break-even. It is the wealthy who, almost exclusively, benefit from inflation. And it is the poor who pay. Inflation is regressive taxation, it is oppressive, it is deceptive and it is repugnant to human dignity and common-sense. Inflation is not a good thing.

If you (generic) want to keep money in the hands of the national government for patriotic reasons, so be it. It's at least a reasonably arguable position. But we must end the issuance and purchase of unbacked monetary instruments (e.g. government bonds) with counterfeit money printed by the private central bank. We must end inflation. We must stop the counterfeiting of money by the government and its henchmen in the private banks.

 

[acptulsa]

In principle, we're not supposed to worry about inflation because "wages also rise with inflation, too." While it is true that wages (eventually) rise to match inflation, the fact remains that inflation redistributes wealth from the late users of new money, to the early users of new money, as explained above.

Or as I like to put it, if the dollar loses value every day, we all take a pay cut every day. How many of us can get a raise every day?

But too many people don't understand that the dollar loses value every day. Which is why I said this, though I think it's down to a penny now:

I think what the newcomer to this discussion has the most trouble understanding is the dollar is not a dollar--it's a nickel.

What do I mean? Well, my old man got out of the Army Air Corps after WWII and got himself a good job paying a dollar an hour. How is that a good job? Easy--it was 1946 and the dollar was still a dollar. As in, when he wanted a Pepsi he paid a nickel for it--now it costs a dollar. When he wanted to ride a bus, he put seven cents in the meter, or a nickel and a half--now it costs a buck and a half. When he wanted to sit down and have a cup of regular old coffee, he paid a dime, or two nickels--now it costs two bucks. When he put gas in the car (it was always cheap in Oklahoma), he paid 14.9 cents per gallon, or three nickles--now it costs three bucks. When he was hungry for lunch, he bought a deluxe double hamburger with all the trimmings for a silver quarter, or five nickles--now it costs five bucks. When he wanted to go to a movie, he paid thirty-five cents or seven nickles--now it costs seven bucks. And when he shopped for a new top of the line Dodge Custom with heater and radio and other options, it would set him back two grand, or forty thousand nickles--now it costs forty thousand dollars.

The Pepsi isn't any wetter, the gas doesn't burn any brighter, the double burger isn't any more filling, and the movie doesn't last any longer today (with no newsreel, serial and cartoon, it actually doesn't last as long). So, there's only one explanation. The dollar is no longer worth a dollar. The dollar is worth a nickel. Period.

Why do you think all the five and ten cent stores have been replaced with dollar stores?

 

[ClaytonB]

Or as I like to put it, if the dollar loses value every day, we all take a pay cut every day. How many of us can get a raise every day?

Exactly. Out of rep, sorry, but I'm stealing this.

The dollar is no longer worth a dollar. The dollar is worth a nickel.

"BuT tHaT DoEsN'T MaTteR UnLeSs YoU'Re a RoN PaULiTe MoRoN aNd KeEp YoUr LiFe SaViNgS iN CaSh!"

But as you said, the dollar devalues every day, but none of us (except big Wall Street traders and the political "elites") can give themselves a raise daily. The working-class man is doing an uphill climbing race on a sand-dune (the continually devaluing dollar), while the commercial banks and their private-sector cronies are just flying to the top with a jet-pack fueled with the money siphoned away from our hard-work through the mechanism of inflationary counterfeiting.

And the average person on the street is absolutely smart enough to understand what is actually at stake, here. Everyone understands why private-party counterfeiting is illegal. The only reason that the mass of the public does not rise up in outrage against this system is that it is wrapped in endless layers of obfuscation, to prevent people from becoming aware that what the Fed is really doing is counterfeting the dollar, full-stop.

 

[Snowball]

what the Fed is really doing is counterfeting the dollar, full-stop.

No, it's not counterfeiting the dollar. There is no "dollar" unless you count coins minted by the U.S. Mint that can nominally circulate as currency.

Federal Reserve Notes have superceded the dollar legally. Since it is fully legal, it is not counterfeit.

 

[ClaytonB]

No, it's not counterfeiting the dollar.

Assertions are cheap. Indeed, the Federal Reserve (in cahoots with the US government) is counterfeiting the dollar. Full-stop.

There is no "dollar" unless you count coins minted by the U.S. Mint that can nominally circulate as currency.

This is pedantry. Word-salad. Yes, there are technical distinctions arising from which department/entity is responsible for the various aspects of the currency (physical coin circulation, physical FR notes, ledger money supply, Fed balance sheet, etc.) But no matter how labyrinthine the Rube Goldberg mechanism by which the counterfeiting press operates, its net effect is the same: new money is printed out of thin-air for the purpose of illegal taxation (that is, taxation without representation) and counterfeiting (private-party enrichment through credit-expansion that piggy-backs on the Fed's balance-sheet.)

Federal Reserve Notes have superceded the dollar legally. Since it is fully legal, it is not counterfeit.

Funny, this fits exactly with the hypocritical legalism for which Jesus rebuked the Pharisees:

"You have a fine way of setting aside the commands of God in order to observe your own traditions! For Moses said, ‘Honor your father and mother,’ and, ‘Anyone who curses their father or mother is to be put to death.’ But you say that if anyone declares that what might have been used to help their father or mother is Corban (that is, devoted to God)— then you no longer let them do anything for their father or mother. Thus you nullify the word of God by your tradition that you have handed down. And you do many things like that.” (Mark 7:9-13)

The Federal Reserve and the US government are counterfeiting the dollar. The US government has no authority to issue a paper money at all and, even having arrogated that authority to itself, it certainly has no authority to debase/devalue its currency. And it cannot rectify the matter by handing off the dirty work to an anti-democratic, unaccountable, un-auditable private institution, which is exactly what it has done. The Federal Reserve Act is flatly unconstitutional. And the 16th Amendment needs to be repealed. The damage that has been done by these two legal frauds is incalculable. Sooner or later, the Truth will come out.

SOONER OR LATER

 

[ClaytonB]

No, it's not counterfeiting the dollar. There is no "dollar" unless you count coins minted by the U.S. Mint that can nominally circulate as currency.

Federal Reserve Notes have superceded the dollar legally. Since it is fully legal, it is not counterfeit.

Reference for lurkers who might get confused by the Fed's talking-points (verbal sorcery):

 

[acptulsa]

Reference for lurkers who might get confused by the Fed's talking-points...

Yes, some basics are in order:

Between 1913 and 1971, about half a dozen of the world's richest bankers converted the U.S. Dollar from a quantity of gold into junk bonds.

Yes. A quantity of gold by definition, and in reality. Yes. Repackaged debt instruments. Junk bonds.

 

[Snowball]

Assertions are cheap. Indeed, the Federal Reserve (in cahoots with the US government) is counterfeiting the dollar. Full-stop.



This is pedantry. Word-salad. Yes, there are technical distinctions arising from which department/entity is responsible for the various aspects of the currency (physical coin circulation, physical FR notes, ledger money supply, Fed balance sheet, etc.) But no matter how labyrinthine the Rube Goldberg mechanism by which the counterfeiting press operates, its net effect is the same: new money is printed out of thin-air for the purpose of illegal taxation (that is, taxation without representation) and counterfeiting (private-party enrichment through credit-expansion that piggy-backs on the Fed's balance-sheet.)



Funny, this fits exactly with the hypocritical legalism for which Jesus rebuked the Pharisees:



The Federal Reserve and the US government are counterfeiting the dollar. The US government has no authority to issue a paper money at all and, even having arrogated that authority to itself, it certainly has no authority to debase/devalue its currency. And it cannot rectify the matter by handing off the dirty work to an anti-democratic, unaccountable, un-auditable private institution, which is exactly what it has done. The Federal Reserve Act is flatly unconstitutional. And the 16th Amendment needs to be repealed. The damage that has been done by these two legal frauds is incalculable. Sooner or later, the Truth will come out.

SOONER OR LATER

You are fooling yourself. Ask Alan Dershowitz.

 

[ClaytonB]

You are fooling yourself. Ask Alan Dershowitz.

 

[helenpaul]

Inflation is the transfer of wealth to the elite.