Inflation = Stealing from Savers

In a previous post I wrote that inflation is a tax. That's one way to look at it. Actually, the more accurate description of it is stealing. It's just governments that are doing the stealing.

One of the biggest misconceptions is that inflation is a natural and inevitable economic phenomenon, a kind of cost of prosperity. This is false. Inflation is the result of government action, plain and simple.

Everyone knows prices are higher than they were twenty years ago. Few actually know why. Well, here's the reason: The government wants them to be higher, so the government creates more money than the economy actually needs, devaluing the currency, causing prices to rise.

Why does the government do this? Essentially inflation is supposed to act as a cattle prod to get the cattle, I mean people, to spend their money rather than save it--because why save if the money will be worth less in the future? Spending supposedly stimulates the economy and makes it hum, so the government feels it is worthwhile to incite people to spend, even at the cost of reducing the value of their dollars. Are they going to tell you that they are intentionally reducing your savings account value? Nope. They'd just as soon you believe it is a natural occurrence, like El Niño or weeds popping up in your yard.

Another factor is that inflation reduces the size of debt. It's a way the government addresses its debt problem. But by using inflation to reduce debt, they are also reducing savings. So it's a tax. It's an unauthorized, regressive, stealth tax.


Where is the evidence that the threat of inflation causes people to spend? Most people buy what they want when they decide they need it. Do you ever say, "I'd better buy a car this year because next year they are going to cost more?" I don't know of many people that do this.

By the same token, the government fears that falling prices will cause people to delay purchases indefinitely. But prices for electronics have been falling for years, and people generally buy them when they want them. Falling prices have not hurt the sales of electronics. In fact, ultimately they should help.

Is any of this moral? If a citizen works hard and saves his money, shouldn't the government be obligated to protect his wealth? Shouldn't the value of the nation's currency be something the government seeks to maintain above all, or even increase the value of? It seems downright dishonest for a government to set up a currency as the sole means of exchange and then year after year systematically debase that currency. It sounds like stealing.

Don't think for a second that inflation is natural or inevitable. It isn't. But the government wants you to think it is.