2009-02-28

The Problems with Inflation

The Case for Natural Money - George F. Smith - Mises Institute:

"Inflation's standard definition is too narrow to provide an appreciation of the extent of its harm; it is far more than a deterioration of the currency's purchasing power. It's also much more than a 'hidden tax.' Government's perennial fiat inflation is a subtle WMD. Consider the following:

1. In funding wars, it allows government to ignore the fiscal resistance of its citizens.
2. It benefits the central government at the expense of secondary and tertiary governments.
3. It turns moral hazard and irresponsibility into an institution, and guarantees recurring economic crises.
4. By making credit cheap, it encourages businesses to finance their ventures through borrowing rather than equity. Because of market competition, few firms can resist the offer of low credit, making them more dependent on banks. As Pius XI noted in 1931, it puts a dictatorship in the hands of lenders who regulate the lifeblood of the entire economic system.
5. Fiat inflation drives people to invest in capital markets where few will have the expertise, time, and inclination to monitor their investments properly. In former times people could save simply by holding gold and silver coins.
6. Under a perennially increasing price level, the average citizen finds his best strategy is personal debt, which weakens self-reliance and independence.
7. Under chronic fiat inflation, people will tend to choose their employment based on monetary returns. Money then becomes the prime or only consideration for personal happiness.
8. Perennial inflation deteriorates product quality. Industries that cannot compensate for inflation with technological innovation turn to other means, such as producing an inferior product under the same name. Lying, which is bound up with fractional-reserve banking, tends to spread like a cancer over the rest of society.
9. By fueling the exponential growth of the welfare state, fiat inflation fosters the decline of the family. Families become degraded into 'small production units that share utility bills, cars, refrigerators, and especially the tax bill.' The welfare state drives the family and private charities out of the 'welfare market.'"
I hope people come to understand the printing money is bad - let alone printing extra money.
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© 2005-2008 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

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