23A040  Nine Reasons to Inflate by Jim Davies, 10/3/2023

Once you have control over how much money circulates, it's quite easy to inflate its supply. To gain such control you have to separate it from any "backing" that may be said to underlie it (eg gold) and then you're off to the races. In the US, that took place in 1913 when the Federal Reserve was created by Congress as a well-disguised Central Bank, and completed in 1972 when Nixon officially took the dollar "off the gold standard."

Since 1913 the dollar has lost nearly 99% of its puchasing power as a result, meaning that 100 "dollars" are now needed to purchase what $1 would in that year. True, it's a bit more complicated than that because commerce has become more efficient - more goods and services are produced every year, and if that's by (say) 2% and you (government) wish to achieve a 4% inflation rate, you need to create 6% more that year, so as to yield that net rate. Not hard.

But why would you (as government) wish to do so? Let's count the reasons.

1. It deflects hostility from the government to merchants. Government (you) is actually to blame for almost all the turmoil that disturbs the peace of society - including, of course, the apparently rising prices that make household budgets so hard to control - and makes it look as if business is to blame. Every year, prices rise a bit, or so it seems; actually they don't. What really happens is that "money" is losing value by that same bit. You need more pieces of paper to buy the same stuff. It's not at all the merchant's fault - but it looks as if it is. So he gets the blame that belongs to the Feds.

2. It keeps wages low. If an employee is rewarded for good service with a 4% annual raise, he's pleased; and that happens before he comes to realize it will buy no more than the old salary would a year ago. Since he's content, there's no unrest; yet real wages haven't risen at all. People feel richer, yet are actually no better off. It's a really neat trick! It's worked for a third of a century. Wage bills are a big part of any employer's costs, so the boss is hardly unhappy; and the boss is the guy who donates most to your re-election fund.

3. It hobbles savings rates. Normally, a successful career produces rising earnings and so enables one to add to savings accounts and pension plans; but since (by #2) they aren't rising as much as it seems, the power to do that is cut. Simultaneously, the amount saved loses value over time; if invested at 2% when the inflation rate is 4%, its real rate of return is negative; -2%. It shrinks. Thus, the total wealth controlled by the people is minimized, and that is very good for you as a member of government; for money brings power, and power is your favorite intoxicant.

4. It boosts business, and hence tax revenues. Just as inflation makes it fruitless to save, it also motivates people to buy more at once, before real goods rise further in price.

5. You control more investment. This also results from #3; instead of capital (ie, savings) being invested wherever hoi polloi (plain people) think fit, just because we own it, you (government) get to do it. Grand plans can be executed by you and your expert advisors, who must of course be far wiser than mere rubes. Instead of a capitalist society ("little people", investing with millions of independent decisions) you can run a socialist society (brains trusts, expertly deciding what's best.) That's sure to be better. Isn't it? Of course! The USSR was a model of unprecedented success. Wasn't it?

6. You can spend money you don't have. That means you (government) can begin major projects at short notice, without having first to collect the funds as taxes, which was necessary everywhere before the Inflatable Era. So massive wars can be waged, always a good thing for increasing government powers, and generous benefits can be paid out, to make voters happy in time for the next election. Inflation is therefore a kind of invisible tax; productive earners do pay it, but we do so tomorrow, not today. Even now, the man in the street fails to recognize the connection.

7. You may be able to escape bankruptcy. The $32 trillion government debt is of course completely impossible to repay with honest money, but if you can keep the debt rolling over and meanwhile dilute the value of the dollar, it should be possible to pay it off with "dollars" that are worth next to nothing. At the very least, this will keep you solvent until the next election.

8. You can save big on pension payouts. The "Social Security Insurance" scheme begun by FDR in the 1930s gave grand promises of pensions for all, but never specified how much. The payments are at the whim of Congress, and the annual increases to offset inflation are set by government itself; the method is to measure "inflation" by noting the prices of a selected "basket of goods." So you can select a basket whose prices happen not to have increased much, and hike the pensions accordingly; understate the inflation rate by substantial amounts, so cutting the real value of the payout. That would be illegal if done commercially, but don't worry, you also write the laws and own the courts.

9. For a while, you can cut tax rates! - though beware, this is a short-term goodie. Since you can print (or otherwise create) "money" out of thin air, why bother aggravating voters by stealing visibly what they earn and so turning them into angry slaves? Much easier to do it silently, by inflation. Very tempting! This was the way governments got revenue in South American countries for much of the 20th Century, and recently the Argentine one is trying the trick again; according to FEE, its money has within one generation declined from about 1 peso to the US dollar, to 800 pesos per dollar. What a bonanza! They inflated at over 25% per year. But soon there will be a reckoning, and it may get ugly. Best take your loot, turn it into gold, and high-tail it for a tropical beach.