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Inflation Isn't What the "Experts" Say It Is. The Confusion in Terms Is Deliberate

  • Russian inflation

Tags Central BanksInflation

04/05/2022
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Monetary inflation is highly desired by the state. This has been the case thought history and still is the case today. That is because inflation facilitates government spending beyond revenue it takes through taxation. Government spending gives rulers, politicians and bureaucrats greater centralised control and commanding power over people's lives (i.e., the economy and society).
 
Without inflation, the state finds itself shackled within the confines of what it can take via taxes. Therefore, governments will not miss a change to gain control of the monetary system. Once the state does have control of money, inflation becomes inevitable and institutionalised. This is why, in recorded history, nearly all cases of great inflation and hyperinflationary socioeconomic collapse (e.g., Weimar Germany, Zimbabwe and more recently Venezuela) have been a result of government (and/or its central bank) deliberate policy. 
It is because of the insatiable appetite to spend more than they take through taxes that governments, through political deception and coercion, tend to undermine a sound money system and repress monetary freedom in favor of one that facilitates currency debasement (i.e., money printing). That is to say a fiat currency regime monopolised by the state and forced on the people by legal tender laws.

As such, from the statist economics standpoint, the definition of inflation had to be distorted and the public miseducated about it —so that the process of currency debasement (i.e., monetary inflation) may go unnoticed and accepted by those whom it hurts the most, the general pupation.

 

Definition of inflation 

The popular and textbook definition of inflation is a generalized rise in the prices of goods and services. Commonly measured by the Consumer Price Index (CPI). This definition is not wrong per se but it is inaccurate and grossly misleading. Deliberately so. 

The original and more accurate definition of inflation is the artificial increase in the supply of money (and credit). By artificial it is meant that the expansion of the supply of money is not determined by the market (i.e., the people) but rather by the government, usually through a central bank. 

So, this confusion in terms is not coincidental, it is deliberate. Given the rise of Keynesian economics and the inherently inflationary fiat dollar standard we, humanity, live under for fifty years now.


Deliberate distortion

The original definition of inflation has been distorted for two principal reasons.  First, the government and its monetary agency—the central bank—shield themselves from any future blame for the continuing rise in prices and the currency loss of purchasing power that inevitably happens as a result of inflationist monetary policy. This enables the government and mass media outlets to divert the blame to something or someone else. The usual scapegoats being “greedy businessmen” or “corporations.”

 
Second, the official and distorted definition of inflation—a generalised increase in prices of goods and services—conceals the truth, the true source of inflation, thus preventing the public from knowing that inflation and the currency’s loss of purchasing power is a deliberate policy of government/central bank. Not knowing this, the public will not protest against it. 
For example, this report claims that most Americans believe “corporate greed, profiteering and price gouging” is the cause of the current inflation crisis in the United States, where price inflation hit a 40 year record high

What’s more unsettling is the same report found that the majority of those polled also believe that the government should step in and resolve the problem. In other words, the public wants the causer of the problem to solve the problem.

Such is the depth of economic misinformation and miseducation we face. Perhaps, if the public knew that since the establishment of the current US central bank in 1913, the dollar lost more than 95 percent of its purchasing power relative to gold (the commodity that gave the dollar its initial value, stability and global acceptability), they wouldn't blame the inflation crisis on “corporate greed”. 
Economist and social philosopher Murray Rothbard wrote
"Government is inherently inflationary because it has, over the centuries, acquired control over the monetary system. Having the power to print money (including the "printing" of bank deposits) gives it the power to tap a ready source of revenue. Inflation is a form of taxation, since the government can create new money out of thin air and use it to bid away resources from private individuals, who are barred by heavy penalty from similar "counterfeiting." Inflation therefore makes a pleasant substitute for taxation for the government officials and their favored groups, and it is a subtle substitute which the general public can easily—and can be encouraged to—overlook." 

The government’s monetary agency and the current fiat money system are the cause for today’s increasingly inflationary and chaotic monetary situation. Not corporate greed, speculators, free-market capitalism, Vladimir Putin, or the weather. 

Under a fiat currency regime, the central bank can easily, artificially and systematically increase the money supply, almost like a magic trick, which makes inflation (mild or severe) the norm. And this inflationary process gradually destroys the purchasing power of the currency resulting in higher prices. This policy, while benefiting the government and associates, defrauds the people and impoverishes society, economically and morally. 

Economist Hans F. Sennholz noted:

It is not money, as is sometimes said, but the depreciation of money—the cruel and crafty destruction of money—that is the root of many evils. For it destroys individual thrift and self-reliance as it gradually erodes personal savings. It benefits debtors at the expense of creditors as it silently transfers wealth and income from the latter to the former. It generates the business cycles, the stop-and-go boom-and-bust movements of business that inflict incalculable harm on millions of people.

Professor Sennholz further noted:

Monetary destruction breeds not only poverty and chaos, but also government tyranny. Few policies are more calculated to destroy the existing basis of a free society than the debauching of its currency. And few tools, if any, are more important to the champion of freedom than a sound monetary system.


Conclusion

 
A generalised rise in the prices of goods and services, is a consequence of inflation, not inflation itself. Inflation was classically (pre-Keynesian economics) defined as an artificial increase in the supply of money and credit. 

Nowadays it makes sense to use the terms monetary inflation to specify the artificial increase of the money supply, on one hand. And use price inflation to refer to a generalised rise in prices of goods and services on the other. 

Irrespective of the confusion in definition, inflation stealthily distorts and debilitates the economy, steals the people's purchasing power and impoverishes society while benefiting the ruling political and business elites. 

History (and common sense too) makes it clear that fiat currency regimes are unsustainable arrangements that always and inevitably fail. As such, there is no reason to believe today’s cruel and oppressive fiat currency regime will defy Natural law to stand the test of time. 
Evidence suggests it is more sensible to believe the fiat dollar standard too will crumble. And when it does, we hope economic miseducation and misinformation will crumble along with it. 
Author:

Manuel Tacanho

Manuel Tacanho is founder of Afridom, a sound money based digital banking startup for Europe and Africa. He's also an advocate of free markets and sound money for Africa’s economic development.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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