In an essay published in 1942, Ludwig von Mises laments the public’s “widespread ignorance” of the social implications of inflation then proceeds to define and describe what those implications are. He explains the harm visited on creditors and points out that all of us, in one way or another, are creditors. He discusses the advantages and pitfalls of different hedging strategies. Moral and political effects are examined as are the downfalls of using inflation, as opposed to taxation, for government funding. All of these points are presented after describing three assumptions he makes of his readers; three assumptions that form the foundation of his discussion. The first being, that “everybody knows that inflation consists of a large increase in the available quantity of money and money substitutes such as bank credits.” Secondly, that “everybody…knows that a general rise of prices and wages is the unavoidable and inescapable result of inflation.” And finally, that “most people realize that when inflation is going on price control is a quite ineffective method of controlling prices and wages; at best, it is a temporary expedient to break or postpone the force of inflationary effects.” The point to note is that Mises assumed the reader understood the definition of inflation; its genesis – an increase in the quantity of money; its effects – an increase in prices; and what would not work to squelch it – price controls.
Less than nine years later, Mises spoke out against the temptation and trend of governments to use inflation as a means of funding government expenditures. Contrary to his essay just described, he no longer assumed that the public knew the correct and traditional definition of inflation, in fact, quite the opposite. He states, “What makes it possible for a government to increase its funds by inflation is the ignorance of the public. The people must ignore the fact that the government has chosen inflation as a fiscal system and plans to go on with inflation endlessly. It must ascribe the general rise in prices to other causes than to the policy of the government and must assume that prices will drop again in a not-too-distant future.” From this we see that in the span of less than nine years, Mises’s observation is that where in 1942 the public knew inflation was an increase in the money supply, in 1951 it did not; where in 1942 the public knew that price increases where the result of inflation, in 1951 it did not; and where in 1942 the public knew that in an inflation prices would continue to rise, in 1951 it did not. In fact, the assumption was that, somehow, prices would soon drop.
At the end of his talk, Mises takes time to warn of a “…reprehensible, even dangerous, semantic confusion…” that has overtaken the use of the word “inflation”. No longer do people use it to refer to the increase in the quantity of money, but rather it is used to describe the consequence of inflation, the rise of prices. This confusion thus leads to an atmosphere where one is not able to discuss the cause of the rise in prices as there is no longer a term to describe the cause of the rise in prices. Since it can not be discussed it can not be fought and those who claim to be fighting it, the government, are merely posing as inflation warriors, all the while only fighting the symptoms of inflation, not attacking “…the root of the evil”.
Ron Paul is not one who has been fooled. In a statement given on the the House floor last year, Paul clearly strikes at ‘”the root of the evil” and makes clear to all who will hear the fate that awaits those who live in an inflationary economy:
…Inflation facilitates deficits, needless wars and excessive welfare spending.
Debasing a currency is counterfeiting. It steals value from every dollar earned or saved. It robs the people and makes them poorer. It is the enemy of the working man. Inflation is the most vicious and regressive of all forms of taxation. It transfers wealth from the middle-class to the privileged rich. The economic chaos that results from a policy of central bank inflation inevitably leads to political instability and violence. It’s an ancient tool of all authoritarians. Inflating is never a benefit to freedom loving people. It destroys prosperity and feeds the fires of war. It is responsible for recessions and depressions. It’s deceptive, addictive and causes delusions of grandeur with regards to wealth and knowledge. Wealth cannot be achieved by creating money by fiat. It instead destroys wealth and it rewards the special interests…
Inflation has been used to pay for all wars and empires. And they all end badly. Inflationism and corporatism engenders protectionism and trade wars. It prompts scapegoating: blaming foreigners, illegal immigrants, ethnic minorities, and too often freedom itself for the predictable events and suffering that result.