Sunday, November 9, 2008

The Purpose of Inflation

Some forms of increasing a money supply are ethical, while others are not ethical. Here we will offer a few comments and definitions which will help describe key features of an inflationary monetary system.


Working definitions of inflation often include reference to money class and ethics of production, in addition to quantity. Here we will offer three definitions of inflation, including the most basic definition possible.

The first definition addresses only the quantity attribute in defining inflation.

Definition 1: Inflation is any increase in a money supply.

The next two definitions of inflation take into account the following three attributes:

  • Money class
  • Relative money quantity between money classes
  • Ethics of money production and use

Definition 2: Inflation is defined as “an extension of the nominal quantity of any medium of exchange beyond the quantity that would have been produced on the free market" - The Ethics of Money Production, Jorg Guido Hulsmann

Definition 3: Inflation is defined as “the process of issuing money beyond any increase in the stock of specie” - (Man, Economy, and State, 3rd ed., 1993, p. 851, Murray Rothbard)

Purpose of Inflation

When inflating with costless money, the purpose of inflation is to use NEW MONEY to purchase REAL ASSETS at OLD PRICES, thereby causing a wealth transfer from the people who get the new money last, toward the people who get the new money first.

In other words inflation is a sophisticated form of ROBBERY made possible by legalized “money” creation ex nihilo.

Sound Money

Sound money is a commodity that is costly to produce and which has been voluntarily accepted by market participants for use in indirect exchange.

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