Inflation: It’s a Wealth Redistribution Scheme

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Inflation is a stealth tax.

(From Mises)

It is better to think of inflation as a process rather than a particular rate. The process starts with a particular type of monetary system, emerges in an expansion of the money supply by central bank printing and bank loans flowing into various areas of the economy, manifests itself in prices rising generally — though unevenly — higher than they otherwise would have been, finally leaving a wake of winners and losers.

This approach allows us to see inflation as not some inevitable force, but a deliberate process of wealth transfer enshrined in state policy.

How is wealth transferred by inflation? Money represents purchasing power. Creating money out of thin air, which is what central banks and commercial banks are licensed to do, confers purchasing power on those who are able to use the money first. For this new money to obtain purchasing power, it must rob little bits of purchasing power from all the other money in the economy. Purchasing power is transferred from those who hold money to those who create new money at close to zero marginal cost.

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