On Inflation and Theft

Some would argue that growing social and economic inequality; unemployment; and economic instability are the result of globalization. They are not. They are the result of monetary policies based on compromises resulting from conflicting and corrupted economic philosophies. In other words, governments and banks have broken our capitalistic system.

Under true capitalism, prices would inevitably drop due to increased productivity, resulting in improved living conditions for all citizens without the need to increase wages. Productivity-induced deflation would increase the purchasing power of consumers. They would buy more products and save more money to spend after retirement. This would benefit businesses as more and more people could afford to buy their products. The lower price per unit would be more than compensated by increased volumes and productivity. And we haven’t even factored in the creation of new markets through innovation.

Governments, however, are scrupulously inflationary in nature. They have the tendency to spend more than the revenue they receive through taxes. They borrow to cover the deficit. That’s why governments issue bonds. To help the governments to pay off these loans, and the interest on them, the central banks 'create' money via monetary policy and governments 'print' money to create inflation. Inflation reduces the relative debt, which greenlights more overspending by politicians. Central banks may even choose to 'buy' the bonds directly if the market is not interested in buying them. 

Inflation is then exponentially increased by fractional-reserve banking, where commercial banks may create and lend out multiple currency units for every single unit they loan from the central bank or have in deposit. Inflation means higher prices, which trigger higher wages that can be taxed, thus increasing the government's income. All fiat currencies are losing value at an ever-increasing speed. Interest rates are low. And prices are on the rise. So, savers become losers. Saving for retirement or a rainy day is no longer a valid strategy. And because everyone is fleeing into overpriced paper assets and real estate, sold by unscrupulous brokers, traders, and bankers, we are moving from one crash to the next at ever increasing pace, and with ever increasing impact.

That is why I believe that monetary systems should be made independent of governments and central banks, that free banking would be preferable. I am eager to find out whether ongoing experiments with cryptocurrencies might lead us to a sustainable solution. And I further believe in reintroducing the gold standard and abolishing fractional-reserve banking to prevent banks and governments from stealing private wealth through inflation. That would induce governments to keep their spending in line with their tax revenue.