Why inflation is theft and what Central Bankers don't want you to understand.
Most people don't give any thought to what money really is or how the Central Banking system is effectively rigged against them. In this article I will explain why it's important to understand that the mechanics are literally robbing people of their future wealth and hopefully this will inspire you to take action and at least start to consider other alternatives means for wealth preservation and growth, in particular cryptocurrencies.
Although the 'experts' would have you believe that the inflation that is being felt around the world right now is transitory I would beg to differ. I'm sure you have started to feel the pinch in your pocket, whether that be at the petrol pump when you fill up your car, in the supermarket, or when you receive an electricity or gas bill. But the bottom line is inflation is actually theft.
Most people shouldn't feel bad for not understanding this as the idea of economic inflation sounds wonderful; you want your house to become more valuable, or you want your investment portfolio to appreciate. You effectively want things to go up in value. How they do that however is very important.
Inflation is a word that gets twisted as it has different meanings. Do you mean inflation of the money supply, or price inflation?
Inflation is specifically the arbitrary increases in the supply of fiat currency.
What's happening is that the actual unit of perception that we are using to value assets, i.e. the Dollar, is being diminished. The Dollar is a fiat currency. Fiat in simple terms means "because I said so" which in itself a veiled threat of force.
The Dollar was originally created to make gold more convenient, more portable and in essence more transactable. The problem is you end up trusting the custodian and over time this has become a most alluring source of power for governments, or for anyone, as it can command force. By being custodian they are able to control the source of economic power.
The custodial system went from a full reserve currency, with each unit of currency redeemable for a unit of gold, to a fractional banking system where there was an excess of paper beyond what the gold reserves could justify, to a post 1971 fiat currency that is not redeemable for gold whatsoever.
Fiat currency as it stands is effectively an irredeemable debt certificate undergoing a slow motion default via inflation, while its use is forced upon free economic actors.
No one would choose to hold fiat currency
Let's face it, no one would voluntarily hold fiat currency. Why choose to hold a form of money that someone can arbitrarily diminish?
Perhaps its because people entrust their governments too much because the system you were born into indoctrinates them into believing that they are stable and implicitly trustworthy.
Most people have the notion that they make as much of their local currency as they can, they put it under the mattress and they will be fine. Inflation is however never considered in terms of how damaging it can be to literally devastate someone's wealth over time. Also, many opt to not even consider what they do with their money. Many are good at making money, but equally many don't care too much about financial literacy. Given the lack of desire to learn people opt to choose only fiat currency out of laziness and perhaps even terror.
We are all prone to seek out cognitive expedience. You don't necessarily want a certain amount of fiat currency, you want purchasing power; but most people don't realise it. As a matter of cognitive expedience you think in terms of your local fiat currency.
Money literally gets into the psyche of people; we use it to communicate, to negotiate and plan. Its deeply embedded into our cognitive machinery.
Typically people go through life pursuing lets say Dollars, but really what they are pursuing is what those Dollars can actually get them. That is what money is; it is the most exchangeable good. Think of it as a call option on anything that the market can produce - any good, any service, any knowledge, human time; anything that the market can produce. That is why it is the most apex good in the entire market place of the world.
The most important form of property
Ultimately, money is the most important form of property. All we are really after, in terms of our lifestyles, our businesses, our governments are property strategies, ways to reach consensus on property and distribute that property in an equitable and fair way.
Property is thought of typically as the house, the car or the stocks one owns. Property is actually a relationship - an exclusively acknowledged relationship between the owner and the asset.
The fact that you can own a house and no one can just come into it and if they did you have recourse in the legal system to have them removed. This is the foundation of civilization.
Take our most precious form of human property, ourselves; only you own yourself. Only you can move your arm or your leg, you can't even sell that property or trade away your will power or consciousness to someone else, it is inalienable and it can't be traded away.
What you choose to do with that self-ownership is you go out into the world and you add value to something, be that planting a garden, building a business or trading the fruits of your labour with other self-owned people. This is how we create wealth.
So, the basis of civilisation is our relationship between the owner and our asset, which we call property. Money is therefore just a reflection of the wealth in the world; the property that we have created through this capitalistic process.
When you give one organisation legal monopolistic privileges, which is what the Central Bank has, to effectively monopolise money and control its issuance they then have a mechanism to violate the property rights of the economic actors that are using fiat currency and who are denominating the value of assets in that currency. So this contradicts the premise of self-ownership when we give power away to a single institution that can arbitrarily choose to violate the relationships of all economic actors using that money.
The dilution of wealth
By holding a certain amount of Dollars you effectively have a portion of the total. If the Central Bank can then change the total, they can dilute what you have.
The perception is that the value of a house is going up; the reality is however that the buying power of the Dollar is going down. This creates the mental equivalent of an optical illusion.
Everyone has opted into a system where humans (aka Central Bankers) arbitrarily make a decision as to whether they are going to inflate it. That one group has the power to twist the rules to favour themselves and disfavour everyone else; an asymmetric monopolised structure.
Why is it theft as theft implies ill intent?
It is an unreasonable redistribution of wealth and property from one group to another, having the effect of diluting the property rights of those holding the fiat money. Therefore, anyone who is depending on the fiat money to store its value is in essence being victimised and those getting access to the newly printed money first are the victimisers - those who are extracting the wealth from that group.
This is especially abhorrent when you consider who in society is dependent on fiat money as a store of value: it is the poorest, those on fixed income, retirees, pensioners and those living from pay cheque to pay cheque. These are the people being stolen from.
But is this intentional? The argument against this notion is that that they don't mean to be doing what they are doing and that Central Bank's do it in everyone's interest. However, mechanically those depending on the fiat money are being robbed by Central Banks and those who receive the newly printed money first.
Who receives the money first?
A lot of the beneficiaries of the newly printed money are asset holders, with those assets being real estate and stocks. When the store of value function is compromised, which is what happens when inflation is inflicted, and the value of fiat is not held over time, market actors are smart as they are going to move into a reliably scarce assets and the most predominant store of value traditional assets are stocks and real estate. So people who hold those assets as a large percent of their net worth will benefit at the expense of those who only hold fiat money.
Another detrimental factor is the way in which the new money finds its way into the system. Central Banking and the fiat complex is as clear as mud and as twice as dirty. Essentially governments issue new debt, which is then bought by the Central Bank, so they can inject new fiat money into the economy. The result is a confiscation of wealth and the proceeds are doled out unfairly. Therefore the beneficiaries of Central Bank policy are picking winners and losers, which is the complete opposite of what capitalism stands for, namely a free market economy where businesses look to make a profit by satisfying the wants and needs of people who voluntarily pay for goods and services. If the business is unable to satisfy the market it will fail and the capital will be assimilated back into society and put to a better use. But when you have an unfair avenue of confiscation and wealth redistribution it thwarts that evolutionary impulse that capitalism gives us.
Therefore we have a world where there are Central Bankers printing money to harvest the productive surplus of an economy and dole it out to certain favoured entities at the expense of the masses. With more money flowing around you have more people competing for the same goods and services, so the cost goes up. Although theoretically the average person with assets sees them going up and they have more money, the reality is they only have the same buying power or more often less buying power which is actually devastating. This puts people in a loop of thinking that they should be getting ahead, but they aren't.
It is a fallacy for people to think that inflation is a natural act. There are unelected actors in the background making these decisions and it is somewhat subjective as to whether they are trying to be kind and level up volatility. But the inherent volatility creates debt cycles and devaluing currency.
Typically no one voluntarily has their wealth or capital redistributed from them for nothing in exchange.
But what is money really?
Simply put money is a universal medium of exchange. Capitalism is built on free exchange. You go out into the world and you create things of value and you trade them with other self owned people, which means that you create more output for unit of input, we become more efficient acting in concert than we do acting in isolation. This the division of labour, the reason wealth and riches exist, because we specialise and trade with one another.
In this process something becomes most exchangeable or tradeable. When trading with one another there will be a single asset from that trading activity that is the most liquid, exchangeable or tradeable asset, that is money. Money is not a government creation, it has nothing to do with government apart from them monopolising it and trying to control it to control people.
Money needs to exhibit 5 key properties that market actors voluntarily favour or the services we seek from money:
Divisibility - we want to transact with it at difference scales
Portability - we want to be able to move it over space
Scarcity - not just the supply side, scarcity occurs when demand outstrips supply - oxygen has no price as it isn't scare, however diamonds command a high price because they are in demand and scarcity exists.
Recognisability - each trading party can verify its authenticity
Durability - it won't corrode or decay over time
By definition money is always scarce, because it is a call option on everything - all the capital, all the savings, everything humans can produce.
Market actors tend to favour the money that has the most inelastic supply, meaning that it is least subject to change by the will power of others.
When we think about sacrificing our most scarce things being absolute time and energy to earn money, we want the thing that is given in exchange to be similarly absolute in scarcity. That would be the ideal money.
Over time monetary metals satisfied the majority of the key properties of money and of those metals gold was the scarce, meaning its supply was the least vulnerable to change. This gave the world a medium into which value could be stored and that value would change with relative certainty by only about 2% year over year and this gave gold the store of value function that we have come to traditionally associate with it. So gold is good money and has been for thousands of years.
However, gold is not particularly portable. Over time this was the impetus for private enterprise starting to offer warehousing whereby the business would take custody of the gold, the owner would take receipt and then use that to transact with. This was the answer to augment the portability issues of gold. Those warehouses became banks and those banks became central banks. Counterparty risk was added.
But the power concentrated in the hands of one institution has become noxious, corrupting and irresistible for some people of lower scruples to seek that power and as such it is what has deteriorated the monetary system.
Today we are deep into the fiat currency experiment lead by the United States and things have really come off the hinges.
When money is losing value over time we are more incentivised to be of short term thinking, this is a decivilising force and a big contributor to the moral malaise around the world today.
Money printing is effectively legalised counterfeiting
There really is no difference between counterfeiting and inflating the amount of Dollars in the system. One we say is fine because the Central Bank is doing it with the implicit approval of the government and the other is done by a nefarious individual, but they essentially the same.
As I've already stated money represents our time and energy. If you have a specialisation and you are able to creates something and then someone who doesn't want to specialise in that thing calls on that good or service in return they give you money.
But if you can continually add to the supply of money, you can slowly milk the efforts of the people by effectively counterfeiting their money and devaluing it.
So inflation is legalised counterfeiting and counterfeiting is criminalised inflation.
Life, Liberty and Property
The 3 tenants of natural law and basic morality are life, being your future; liberty being your present; and property being your past.
Property is how you spent your past infusing nature with your life and liberty. You have accumulated the fruits of your labour and that becomes your property.
No one will say that they have a claim on you more than you do. This is a non-sensical argument. There is no argument that one can formulate to suggest that they have a greater claim over a part of your body than you do and the action that it takes. Yet, we have this implemented in the system that can violate property rights, which effectively means your self ownership is limited and someone else has a higher claim on your life than you do. This is the rotten core at the heart modern State marginalised capitalism, with a communistic institution at its core called a Central Bank. The Central Bank is effectively antithetical specifically to property as it is violating the property rights of some to enhance the property rights of others.
We can either follow an ethical entrepreneurial model of co-operation, competition and trade voluntarily with inviolable property and generate wealth, or we can violate the property of one another and fight over it.
When goods and services don't cross borders, soldiers will.
Humans are all seeking something for nothing, if we don't channel that human action into the productive channels of trade and entrepreneurship then the result becomes violence, coercion and compulsion.
By creating an institution or business that can create perpetual profits and never sustain any losses you have quite a big incentive to establish that organisation.
Similarly if you could magically produce a money printing machine, wouldn't you want that and once you had it wouldn't you keep running it until it is literally blowing smoke out the side of it? This is effectively Central Banking in a nutshell.
Bitcoin is the immune response
Bitcoin is the immune response to your property rights being violated by inflation from Central Banks printing money and its subsequent dilution. To avoid this you are effectively going to have to find other investments that outpace the rate of inflation.
But even if you able to accomplish this you actually don't have full property rights over your money as restrictions exist as to where one can send money to, how much one can send, and a raft of other reporting requirements and breaches of privacy that are imposed by the system.
Bitcoin is however the first permanent implementation of this principle of inviolable property; it actually cannot be violated in anyway and in my next article I will be explaining why.