Currency Inflation as Fraud

A reader asks:

“Does inflation count as fraud and theft?”

The elements of fraud are: (1) A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed— (2) that deceives and is intended to deceive another so (3) that he relies  upon it (4) to his legal injury.

In the case of an inflated currency, the concealed fact is the diminution of value transferred from creditor to debtor or to the state patron; the deception is that the diminution is deliberate, not caused by some impersonal Keynesian mechanism of the market, nor by the greed of business, but by and only by the tireless printing presses of the state; any creditor who uses the currency rather than gold or barter a fortiori relies on the currency to store value; the injury is the transfer, without the consent of the creditor, of his value or purchasing power to the debtor or to the state patron.

By ‘state patron’ here I mean anyone who receives payment from the state coffers soon after the printing presses have run. The purchasing power of that freshly minted legal tender exists only insofar as the market has not yet had time to react and adjust wages and prices to the new and inflated level. It is a legalized counterfeit.

Example: If there are thirty dollars in Happy Valley because thirty dollars worth of labor was done to grow various apple orchards, and a dollar buys an apple, and Caesar’s printing presses crank out thirty more dollars on Tuesday and these go into the pocket of Banker Brown (who did no labor to grow anything, but is Caesar’s crony), between the time when the presses run and the time on Friday when bidding for apples drives the price up to two dollar per, every apple Brown buys between Tuesday and the market correction on Friday is value stolen by fraud from people overvaluing Brown’s banknote at its face value. On Wednesday he steal a dollar per every apple he buys; if the farmers raise prices to 1.50 on Thursday, Brown is stealing only fifty cents per apple.

While it is possible that Banker Brown is unaware that the newly printed bills are fiat currency representing nothing, it is not possible that Caesar is unaware. Going off the gold standard is a purposeless and meaningless act unless it is done for the specific purpose of increasing the national debt (such as in time of war or great public expenditure) and having the debt absorbed by everyone who uses the fiat currency.

Originally, banknotes were issued by banks as IOU’s or markers against the stock of gold held in reserve. For a variety of reasons, some more reasonable than others, states arrogated to themselves the right to coin money and issue banknotes, and to decree which currencies shall be acceptable to pay debts. However, during the period of greatest wealth-creation in history, the European nations adhered to an international gold standard. This allowed for the accumulation of capital, which lowered interest rates and made great projects possible, and also this facilitated free trade: but the currency of all nations was redeemable in gold at the rate fixed by the market, not by fiat. Gold retained its value, and hence value could be stored rather than consumed. During and after the First and Second World Wars, the European Powers gave into the temptation to inflate their currency, again, for reasons both noble and base, and the gold standard was abolished piecemeal (over several administrations, notably from FDR to Nixon). International agreements promoted the US dollar as an international fiat currency, whose value was not in gold or anything substantial, but, rather, in the perceived willingness and ability of the US government to tax their citizens future earnings, and hence retain value across time. Inflation, a phenomenon that previously had only ever been seen during gold rushes or the conquest of Mexico by Spain, became a permanent fixture of the economy, and capital accumulation was slowed, and in some cases reversed. The deceleration of the pace of economic growth and industrial advance in America tracks fairly closely to this permanent-inflation economy.

In sum, in a healthier and more honest economy, a banknote is an IOU for something of real value, like a bar of gold, which you can go pick up by presenting your IOU to the bank that wrote it. In an unhealthy economy, a banknote is an IOU backed by a solemn promise from Caesar to pay you back somehow, sometime, and pay you a percent of what Caesar owes, less the value Caesar in his sole discretion, determines it is in his best interest retain or destroy or transfer via the mechanism of currency inflation.

Theft is taking the personal property of another with the intent to do an act which will deprive him permanently of the use and enjoyment thereof. In this case, the property is the money value (and I assume no sane man will argue that the physical banknote but not the value thereof belongs to the man who earn it by his labor) and the intent that he should never have returned to him the value once it is transferred.

The reason why inflation is a difficult concept for laymen to grasp is because they may not at first understand how a banknote could have or retain an imponderable and non-physical property like ‘value’ that is both objective and representative, and yet cannot be measured with a microscope. Materialism as a philosophy is insufficient to explain the materialism of economics.

Philosophical materialism is wedded to radical subjectivism on issues of symbols and semiotics: the idea that a banknote is a physical symbol of a real thing of value, such as a good or a service, baffles them.

In  sum, inflation is fraud and theft using the precise definitions of those terms, yes.