Tuesday, 21 October 2014

History of Money

The Cultural and Spiritual Legacy of Fiat Money

Posted by Gonzalo Schwarz
June 29, 2012

by 

The notion that inflation is harmful is a staple of economic science. But most textbooks underrate the extent of the harm, because they define inflation much too narrowly as a lasting decrease of the purchasing power of money (PPM), and also because they pay scant attention to the concrete forms of inflation. To appreciate the disruptive nature of inflation in its full extent we must keep in mind that it springs from a violation of the fundamental rules of society.

Inflation is what happens when people increase the money supply by fraud, imposition, and breach of contract. Invariably it produces three characteristic consequences: (1) it benefits the perpetrators at the expense of all other money users; (2) it allows the accumulation of debt beyond the level debts could reach on the free market; and (3) it reduces the PPM below the level it would have reached on the free market.

While these three consequences are bad enough, things get much worse once inflation is encouraged and promoted by the state (fiat inflation). The government’s fiat makes inflation perennial, and as a result we observe the formation of inflation-specific institutions and habits. Thus fiat inflation leaves a characteristic cultural and spiritual stain on human society. In what follows, we will take a closer look at some aspects of this legacy…

Continue reading at mises.org…

image: flickr.com/tamburo

One Comment

  1. @Chafuen August 10, 2012 9:13 AM
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    Jörg Guido makes splendid arguments as usual. I am finishing an essay for a book on sound money and morality. A challenge today is that the most destructive impact of fiat money has to do with the manipulation of money and credit that it allows. The redistribution of wealth during these last years has been immense. If money has an aspect of "good held in common" (at least the portion as reserves in the Fed and Central Banks qualifies as such), we have witnessed and are witnessing huge violations to distributive justice, even if high inflation has yet to appear in most countries.