Monetary Theory

Inflation, to sum up, is the increase in the volume of money and bank credit in relation to the volume of goods. It is harmful because it depreciates the value of the monetary unit, raises everybody's cost of living, imposes what is in effect a tax on the poorest (without exemptions) at as high a rate as the tax on the richest, wipes out the value of past savings, discourages future savings, redistributes wealth and income wantonly, encourages and rewards speculation and gambling at the expense of thrift and work, undermines confidence in the justice of a free enterprise system, and corrupts public and private morals.

Someone asked for handout on inflation to pass out in front of the Fed. This is quick.

The Federal Reserve System virtually controls the nation's monetary system, yet it is accountable to no one.

And what has Washington done? Rob us, badger us, and take us to war.

When used with discretion, debt can be a good thing. But many of us individually, and we as a society, can have too much of a good thing.

Making consumers and businesses appreciate the real value of assets is the way out. There are no shortcuts, only placebos.

Recorded at Mises University 2007.

Since it's so important, the main point just made needs to be repeated: credit expansion creates an artificial economic inequality by showing up in the stock market and driving up stock prices. Since the stocks are owned mainly by wealthy people, they are the main beneficiaries of the process. The more substantial and the more prolonged the credit expansion is, the larger are the gains enjoyed by wealthy people more than anyone else.

The systematic problem arises from the fact that monetary policy sends incorrect signals into capital markets, reducing lenders' ability to distinguish between good and bad loans; it also sends incorrect signals to potential borrowers about what they can and cannot afford.

Although Frum naturally doesn't say it explicitly, the only "cushion" that unbacked fiat money can provide is that it allows politicians to literally paper over crises, limping along from one to the next.