#45 Inflation Must Be Unfair

Proponents of expansionary monetary policy are always closest to the money spigot. It is essential to understand that creation of new money is not creation of new wealth. It is instead, changes in the denominator of the unit of account of accumulated capital.

For inflationary monetary policy to be “effective”, it must unequally redistribute wealth. If new wealth is not created by money printing (the aggregate of available goods and services remains the same), then it can only be taken from some and given to others.

Of course, there are many strong advocates of these types of re-distributive economic models, however, they are incompatible with the mechanisms which are necessary for the flourishing of societies.

In order for inflationary monetary policies to achieve their ends, the relative purchasing power of some must decrease, and the relative purchasing power of others must increase. As we know, those with the earliest access to newly printed money, have the advantage of retained spending power (as the prices of goods and services have not yet adjusted to the change in the denominator of value) with wealth they have redistributed from another (ie: savers).

Today marks an unprecedented level of democratically overseen wealth redistribution. The mechanisms by which governments and central banks are able to take from some and give to others have never been more complete. And yet, income inequality and net wealth inequality are continuously on the rise.

The nature of incentives are quite simple. Politicians are incentivized to seek favor with special interests groups in order to maintain standing in the political palate. Some wealth redistribution happens from the rich to the poor, but in aggregate, you can see the trends on a net basis.

If inflation is as necessary as the fiat academics would have you believe, then why do conditions continue to deteriorate? If the mechanisms of wealth redistribution are more robust than ever before, why do the poor get poorer and the rich get richer? Because nobody is better than their incentives and politicians will always operate in the ways which will secure power and influence.

In systems of wealth redistribution, the common man will always be at the greatest disadvantage. It is precisely the disadvantaged (easily pacified by token offerings of socialism) who benefit most greatly from free and fair trade and sound money with which they can save for the future.

You will never be at the top of the power structure, and if you do benefit disproportionately at the expense of others, shame on you.

Filter every economic plan of action and political playbook through the first principles of profitable human cooperation. It is through these systems alone that we see positive progress in the net benefits afforded to society and opportunities for the politically ostracized to rise above the status quo.


Book of the Month:

The Ethics of Money Production by Jorg Guido Huulsman

“To have a paper money means to allow the government to significantly curtail the personal liberties of its citizens”

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