“Inflation is the most
insidious enemy of capitalism”
Richard
Fisher, president and CEO of the Federal Reserve Bank of Dallas,
comparing U.S. monetary policy with that of “ancient Rome” and “today’s
Zimbabwe.”
When most Americans hear the term "inflation," they think
"rising prices."
"Inflation" is not "rising prices." Rising prices
are caused by inflation, that is, by the
inflation of the supply of money.
When the government inflates the supply of money, it causes prices to
rise.
In a healthy, capitalistic economy, the price of everything is always
going down. Computers are a good example: each year
the price is lower and the speed is faster.
If the price of widgets
is going up, it is likely that
- the government has imposed regulations or restrictions on the
production of widgets, causing fewer widgets to be sold, or
- the government has created lots of new money, making the value of
all money (new + old) lower, raising the "price" of
widgets as expressed in money that is now worth less.
It is not merely that inflation breeds dishonesty in a nation.
Inflation is itself a dishonest act on the part of government, and
sets the example for private citizens. When modern governments inflate
by increasing the paper-money supply, directly or indirectly, they do
in principle what kings once did when they clipped coins. Diluting the
money supply with paper is the moral equivalent of diluting
the milk supply with water. Notwithstanding all the pious
pretenses of governments that inflation is some evil visitation from
without, inflation is practically always the result of deliberate
governmental policy.
Henry Hazlitt, What
You Should Know About Inflation
In an introduction to his notes on the Constitutional Convention's
deliberations in Philadelphia, James Madison, the "Father of the
Constitution," noted that one of the defects the Convention was
assembled to remedy was that
In the internal administration of the States, a violation of
contracts had become familiar, in the form of depreciated paper made a
legal tender.
Accordingly, the U.S. Constitution prohibits paper money, or the
emitting of "bills
of credit." (Art. 1, § 10, ¶ 1) That provision reads:
"No State shall enter into any treaty, alliance, or
confederation; grant letters of marque and reprisal; coin money; emit
bills of credit; make any thing but gold and silver a legal tender in
payment of debts; pass any bill of attainder, ex-post-facto law, or
law impairing the obligation of contracts; or grant any title of
nobility." ...
In Federalist
Paper No. 44, possibly the most authoritative source for
constitutional interpretation, Madison explained the provision:
The extension of the prohibition to bills of credit must give
pleasure to every citizen, in proportion to his love of justice and
his knowledge of the true springs of public prosperity. The loss which
America has sustained since the peace, from the pestilent effects of
paper money on the necessary confidence between man and man, on the
necessary confidence in the public councils, on the industry and
morals of the people, and on the character of republican government,
constitutes an enormous debt against the States chargeable with this
unadvised measure, which must long remain unsatisfied; or rather an
accumulation of guilt, which can be expiated no otherwise than by a
voluntary sacrifice on the altar of justice, of the power which has
been the instrument of it. ... No one of these mischiefs is less
incident to a power in the States to emit paper money, than to coin
gold or silver. The power to make any thing but gold and silver a
tender in payment of debts, is withdrawn from the States, on the same
principle with that of issuing a paper currency.
A paper money economy is designed to foster a consumption mentality.
No one saves for the future if they know the money will be worth less.
People are inclined to go into debt, rather than to work, to get the
things they want NOW, rather than defer gratification for some
future-oriented purpose. Thus, corporations are able to capitalize
quickly, without providing goods or services which are valued by people
of good character, and they can depend on debtor-consumers to buy their
goods with newly-printed money. Paper money is the antithesis of
everything the Hebrew-Christian religion stands for.