Invisibility and Economic Consequences of Inflation

After reading Ludwig von Mises on Money and Inflation: A Synthesis of Several Lectures compiled by Bettina Bien Greave’s, I collated several ideas from selected chapters on inflation. My previous readings on inflation from North, Griffin, and other articles are now reinforced. I decided to rewrite the ideas I gleaned from the selected chapters.

By now, observant people have realized that indeed something is basically wrong with existing monetary system. A cry for reform of monetary system is gaining increasing support. A popular proposal from the establishment is to have a unified global currency. Topics concerning this have already been written for quite some time in journal articles and books. Sooner or later, we will find this global currency part of our daily reality unless the public learn Austrian ideas.

On the other hand, we have the libertarians calling for the need of honest money. When this happens, there is no need for central banking, for fractional reserve, and for inflating the money supply.

Primarily, the reason why inflation is difficult to fight is because its real nature is invisible to the eyes of the public. The public does not even know that it is a tax. Its existence is justified by the government using the pretext of helping increasing number of poor people. But in order to help increasing number of poor people, the government must also increase their tax collection. But people do not want to pay more taxes. So the government increases the money supply.

The invisibility of inflation is further strengthened by economists and journalists whether intentionally or not, they are misleading the public by calling the increase in the prices of primary commodities as inflation. Historically, inflation does not refer to higher prices, but increase in money supply.

The government appears innocent before the public in the event of rising prices of primary commodities. The government does not know what is happening. The government blames “corrupt” capitalists and “greedy” businessmen.

In addition to rising prices, there is a pressure from labor sector to increase wages. We are told that these are “inflationary pressure.” Rising prices of primary commodities and demand for higher salary are not “inflationary pressure.” In fact, such “pressure” does not exist; they are results of increase in money supply.

Inflation is at the heart of contemporary economic crisis, but only one in a million is able to see it.

There are many problems inherent in inflation. The most obvious is that it brings temporary economic improvement, an illusion of economic prosperity that encourages irresponsibility and wasteful lifestyle. And of course the result felt by most people is the increase in prices of primary commodities. As the money supply increases apart from the increase in productivity or increase in the quantity of commodities, this will naturally result to the increase of prices of existing commodities.

Moreover, in increasing the money supply, the middle class and the masses are the ones most hurt. It is ridiculous to think that the government who claims fighting for poverty is actually increasing the misery of poor people by means of taxes, inflation, and increased spending. Ultimately, the government’s act of increasing the money supply is in reality, an act of destroying the existing monetary system that will finally result into the destruction of the entire economic system.

inflation

Someone compares the increase in money supply to that of a drug user. As a drug addict does not know how or when to stop using drugs, government also does not know how or when to stop pumping money into the economy. The only time a drug addict stops is when he is dead. Likewise, inflation stops when the existing monetary system is destroyed.

We are living in a time that is economically dangerous due to ignorance of Austrian ideas; labor unions and the working class are fighting for salary increase that they do not know will eventually reduce the purchasing power of their hard-earned monies. We are caught in a cycle here of economic contradiction.

It is a fact of life that prices of commodities are constantly increasing through time. In response to the suffering of the workers, Labor Unions lobby for salary increase. As salary increases, corporations either declare bankruptcy or increase their capital base by asking loans from commercial banks to continue in business. The increase in production cost will later results to the increase in prices and so the cycle goes on and on.

There is an important missing link in that cycle. Most people already assume that the rising prices of commodities as a fact of life. People accept it as given, something inevitable. They never question it.

If people will only learn to identify the real source of price increase, then they will know the way out to the contradiction in the mentioned cycle. If people find out that the real source in the increase of prices is due to the increase in money supply, then they will know that it is the government’s hand that is primarily responsible for the crisis in the first place. The way out therefore to our economic woes is for the government to stop pumping money into the economy and let the free market work.

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