Inflation via the printing press allows government to tap the property of private citizens without having to obtain their consent.
Two modern methods by which governments can grow, are by raising taxes (which has its limits), or by supplying government bonds to the central bank. The bank then deposits these bonds with the state banks or chartered banks, and there they are treated as an asset. Under fractional reserve banking laws, the bank can then loan out 8 times or 10 times the face value of the bond.
Who benefits from currency dilution? The people closest to the monetary spigot. Those who distribute and regulate the currency, as well as the initial recipients.
Another group that benefits, are those who understand the process, and gear their investments into ‘stuff’, such as real estate, works of art, rare collectables, gold and silver.
Who suffers most from currency dilution? People on a fixed income, without investments such as those mentioned above.
Current money supply growth is running at double digit rates in the following countries: Australia, Great Britain, China (+19%), Canada, Denmark, most of Euro-land, Sweden, Switzerland and USA.
The following example clearly illustrates the effect of ‘monetary dilution’. Imagine yourself in an auction hall. The auction is about to start. You have decided which items you are interested in, and the price you are willing to pay. Suddenly a man comes in carrying a briefcase. The briefcase is filled with hundred dollar bills. He gives several to everybody in the room. Question: “What is going to happen to the prices realized in that auction room?”
In the history of civilization, there is not one country that escaped the destruction of its fiat currency once inflation became part of the process…not one, …NOT ONE!
We arrive at the conclusion based on 5,000 years of history, that MONEY IS A COMMODITY! If it is not a commodity, then it cannot be money, it is simply a substitute for money.
About consistency: I am happy to be able to tell you that during the past
50 years I have steadfastly recommended gold as a necessary part of one’s investment portfolio. Ever since it was 35.00 an ounce.
I close with a quote from Ayn Rand: “Paper (money) is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce wealth, paper is a check drawn by legal looters upon an account that is not theirs, upon the virtue of the victims. Watch for the day when it bounces, marked ‘account overdrawn’”.
Recommended reading: “Inflation - Fiat Money in France”, by Andrew Dickson White. (Available free at www.gutenberg.org/etext/6949)
“The German Inflation of 1923” by Fritz K. Ringer.
“What has government done to our Money?” by Murray N. Rothbard.
“The Law” by Frederic Bastiat.
“The Penniless Billionaires” by Max Shapiro.
Peter Degraaf
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