Inflation is NOT theft?

Economics Economics Questions
1

I was wandering throughout the blogosphere and came across a blog post from J.F. Catalán where he comments on a point raised by Daniel Kuehn about inflation being theft (in commenting on an article from the Atlantic).

Daniel’s pertinent comment first:

“Banks and bondholders get cheated, because their loans are repaid with inflated coin. Similarly, people with fixed savings, such as retirees, get punished for their thrift. President Grover Cleveland, a warrior against inflation (in his day, brought about by cheap silver), rightly likened a debasement of the currency to theft.” This is an irresponsible set of sentences. Nobody has property rights associated with a stable value of money. [Emphasis mine] Everyone makes transactions with the understanding that the value of money changes - CERTAINLY banks and bondholders do. This is absolutely, unequivocally not “theft”.

And Catalán’s concurrence:

Exactly. Inflation ought to be judged based on its consequences.

…

Austrians know that stabilizing the value of money is impossible. Targeting a price level does not accomplish a stable exchange value of money. The value of money is always in terms of other economic goods, and the value of money will constantly be changing: this is a function of changing preferences, expectations, and plans/actions. As long our economy is a money one characterized by the pricing process, then the value of money will always be shifting.

If government-induced inflation is theft, then it is theft when someone affects prices in such a way that it reduces your purchasing power with regards to the relevant good.

The moral argument against inflation is a bad one. Stick with the consequentialist one.

Am I misunderstanding the exchange here, or did I just completely waste my time reading Inflation Is Theft?

2

Basically, intentionally causing inflation is theft, as it necessarily enriches some at the expense of others (to an extent - hyperinflation enriches nobody except holders of more stable currencies). A metaphor would be if your car loses value because someone stole the radio, it’s theft, whereas if your car loses value because it has become less desirable in the free marketplace (older, more mileage), then it’s nobody’s “fault.”

3

When you FORCE people to use a currency.. it is (legal tender laws).

Hoppe has written / made the same point. Trying to find the journal article..

4

Conza really hits it…it’s the forcing people to use the currency that is technically immoral. I think that’s the root of where Catalan’s statement about the moral argument against inflation is a bad one…because simply printing money isn’t inherently “bad”. But yes, when everyone is forced to use that currency, it is stealing and it is bad.

Hülsmann has given a lecture on the subject of legal tender laws almost every year for quite some time. Below ar the latest two. You can find the rest at Mises.tv

Playlist on money

5

John James,

I agree that forcing someone to do something, as is the case with legal tender laws, is argumentatively unjustifiable. I don’t see how it follows from this that inflation is theft if the currency is the only one legally sanctioned for exchange. Hoppe is very clear in stating that no one has a right to the value of his goods as value is placed on goods by individuals and their subjective valuations of these goods; ultimately, claiming a right to the value of something is tantamount to claiming a right to the minds of others. If that’s true, then inflation can’t be theft as the value of a currency is only lowered as a result of market transactions and theft is defined as the aggressive seizure of another’s property.

I’m very interested in seeing the article to which Conza has alluded regarding this -I wonder how Hoppe accounts for this- but could you elaborate on how it is theft?

6

To a point I agree with ThatOldGuy,

The infraction occurs when forcing people to use some form of currency. After that infraction has been committed, I do not see how we can state that printing that currency is theft. After people are forced to use some currency, no further statement of morality would seem to make much sense.

7

Well, if you’re going to use Hoppe as the authority figure, we can look to when he speaks of banks issuing money substitutes without real money to back them:

In this situation, by issuing fake or fiat banknotes that physically cannot be distinguished from genuine money substitutes, a bank can—fraudulently and at another’s expense—increase its own wealth. It can directly purchase goods with such fake notes and thus enrich itself in the same way as any simple counterfeiter does. The bank’s real wealth and the wealth of the early recipients of the money increases through these purchases, and at the same time and by the same action the wealth of those receiving the new money late or not at all decreases, due to the inflationary consequences of counterfeiting. Or a bank can use such fiat money to expand its credit and earn interest on it. Once again a fraudulent income and wealth redistribution in the bank’s favor takes place.

Hoppe. “Banking, Nation States, and International Politics: A Sociological Reconstruction of the Present Economic Order” RAE, 1990. [PDF]

Granted, Hoppe is talking about a situation in which gold has (freely) come to be universally used as the money, and then money substitutes (fiduciary media) are introduced…but the point still stands. Hoppe is obviously saying wealth can be gained “at another’s expense”…i.e. theft has taken place through “counterfeiting”.

He uses similar language later in the same paper:

…the state’s position regarding money and banking is obvious: its objectives are served best by a pure fiat money monopolistically controlled by the state. For only then are all barriers to counterfeiting removed (short of an entire breakdown of the monetary system through hyperinflation) and the state can increase its own income and wealth at another’s expense practically without cost and without having to fear bankruptcy.

If anyone would like to explain how “increasing one’s wealth at another’s expense” is not stealing, I’d be interested to hear it.

8

Still looking… ugh. Looked at publications, nothing stuck out. Think it is within something. Anyway; probably along the lines of when Hoppe quotes Rothbard, in Against Fudiciary Media, EEPP

Explains Rothbard:

The champions of free competition in counterfeiting retort that this is simply the market at work, that the market registers a “demand” for more expanded credit, and that the private bankers, those Kirznerian entrepreneurs, are simply “alert” to such market demands. Well, of course, there is always a “demand” for fraud, and embezzlement, on the market, and there will always be plenty of “alert” swindlers who are eager and willing to furnish a supply of these items. But if we define the “market” not simply as a supply of desired goods and services, but as a supply of such goods within a framework of inviolate property rights, then we see a very different picture. (“The Present State of Austrian Economics,” Journal des Economistes et des Etudes Humaines 6, no. 2, [1995]: 77)

9

Glad to oblige.

The argument there would seem to hinge on the assumption that, on a legal tender-less market, money of a strictly unchanged supply would obviously displace all the others. If we assume as much, it would make sense to speak of inflation as ‘stealing’. But the issue with legal tender is precisely that we cannot know what kind of money would be preferred in a free market, so we cannot say for sure that inflation is stealing.

What if we assume that people prefer some money which’s supply increases at a steady and predictable rate? Would a central bank printing fiat currency at a steady and predictable rate be comiting theft? Of course, it would be guilty of imposing a legal tender, even if it somehow managed to produce exactly the same currency that would have emerged in a free market. But assuming such a miracle is performed, would they be stealing?

Now, I know that many (most?) here would find the concept of anything but gold emerging as the money of choice in a free market as ludicrous, but the fact is that this is far from an apodictically sure thing. It is an assumption, be it an easy one.

So, let those who consider inflation as stealing be very clear, that they think so because they do not doubt that the supply of whatever currency would emerge in a free market would be unchanged.

In short, inflation is theft only if a further assumption is made, while the imposition of legal tender is always immoral.

10

To further respond to the OP, the phrase “inflation is theft” may be a bit confusing if you’re looking closely. Technically the theft takes place in the transaction after counterfeiting…which, of course, the act of counterfeiting causes the inflation of the money supply that Austrians are talking about when they say “inflation”…an increase which, after the transactions take place, in turn causes the inflation of prices that people in the mainstream are talking about when they say “inflation.” (See: Just What is Inflation?)

The phrase “inflation is theft” just skips those intermediary steps so as to more quickly and succinctly get the point across to the uneducated listener. The whole purpose is to dispell commonly held (false) notions and make people understand the reality. Namely:

  1. Prices constantly, and continuously, and largely predictably rising across the board is not natural. It is the result of a currency losing value.

  2. Money constantly, and continuously, and largely predictably losing value is not natural.

  3. The value is diminished due to the issuing of more notes (i.e. what Hoppe means by “counterfeiting”)

  4. Through this counterfeiting process (and the transactions that take place after), wealth is stolen.

Most people have no idea why inflation occurs. They simply know that “things don’t cost as much as they used to.” Everyone knows you have to “account for inflation” when looking at past prices. But they have no real idea why. It’s just “the way things are”. It’s just how things work. They don’t even realize they are being robbed.

The point of the phrase is to alert them to the fact that it is not a natural phenomenon…that they are in fact having wealth stolen from them.

11

I fail to see an explanation in any of that. But I’ll address it anyway.

Who gives a crap what people would prefer? You just said the people are legally forced to use a single currency. That’s even more of a guarantee than what you call Hoppe’s “assumption” about gold becoming the single money.

You’re seriously trying to claim: “well obviously if you assume a single currency, then sure inflation would be ‘stealing’…but in a free market we don’t know that there would be a single currency (or what it would be)…so you can’t say for sure inflation is stealing.”

We’re not talking about a free market. We’re talking about the system that exists…in which there is already a single currency (at least within specific national boundaries.)

So…if “If we assume [a single currency], it would make sense to speak of inflation as ‘stealing’”, please explain how in our current system of a single currency, inflation is not stealing.

12

@OP: Well, that is absolutely asinine. It’s like arguing that the victim of a burglary shouldn’t complain or attempt to bring the burglar to justice since he purchased the goods knowing they could be stolen. The problem is that this line of reasoning (if it can even be called that) implicitly relies on the fallacious idea that the government does not benefit from its actions that influence the money supply. It is true that, for each new widget I produce, I am affecting the value of money (most likely valuating it, not devaluing it as central bank money-printing does). But it is not true that I directly benefit from that valuation. When the government prints a billion dollars, they benefit to the tune of… oh, let’s see, I’m going to have to crunch some numbers here… that’s it, one billion dollars.

So, yeah, inflation - that is, fiat expansion of the money supply - is always, unequivocally theft. Or, to be more accurate, it is robbery since it is theft through the use of force (government’s power to levy fines and impose prison sentences).

Clayton -

13

If we do not know how money ‘should behave’ (because only a free market can show us), we cannot say that money is currently behaving otherwise, especially not is a specific direction (claiming that money is simply not behaving as it should, could be true simply because the probability that we blindly found the optimal is very small). So, we should try to set up a system that lets money behave as it should, and not imply how money should behave (which is what arguing against inflation is). There, I simplified my post.

14

John James,

Hoppe’s point is valid insofar as he writes, but you are the one that calls it theft. It seems he’s condemning the monopoly that the government has on money creation and legal tender laws and these are positions on which you and I agree. Once the media of exchange have been forced on others, there are no qualifications that can make such seizure either more moral or less moral. That said, Hoppe doesn’t argue that inflation constitutes theft; this is not to say that the imposition of such laws as legal tender do not constitute aggression and violate property rights, as they clearly do. Here, he elaborates on why property rights to the value of a thing (the value of money being what inflation diminishes) is indefensible:

Why is this idea of protecting the value of property unjustifiable? First, while every person, at least in principle, can have full control over whether or not his actions cause the physical characteristics of something to change, and hence also can have full control over whether or not those actions are justifiable, control over whether or not one’s actions affect the value of someone else’s property does not rest with the acting person, but rather with other people and their subjective evaluations. Thus no one could determine ex ante if his actions would be classified as justifiable or unjustifiable. One would first have to interrogate the whole population to make sure that one’s planned actions would not change another person’s evaluations regarding his own property. And even then nobody could act until universal agreement was reached on who is supposed to do what with what, and at which point in time. Clearly, for all the practical problems involved, one would be long dead and nobody would argue anything any longer long before this was ever accomplished [A Theory of Socialism and Capitalism, 167].

Because no one can legitimately claim rights to the value of his money, it cannot be said that inflation, which involuntarily diminishes the value of ones money, on the part of the bank constitutes theft.

Hoppe explains that gaining wealth at another’s expense is the result of value differences as a result of inflation entering the economy. While the purchasing power of the first banks to inflate increases, and the purchasing power of the consumer either remains the same or diminishes, it doesn’t follow that this is theft on the part of the banks- its the results of an aggressive monetary system, which is at the root an indefensible aggression. If I were to die in my house right now, and the value of my neighbor’s house decline as a result of this, have I stolen from my neighbor? Granted, such actions may be to my benefit if it was an intended suicide and I perceived that I would benefit from such an event because, say, I hate my neighbor (what schadenfreude!), this would not constitute a theft on my part as theft is the aggressive seizure of physical property. If one does have a right to the value of their goods, my death would constitute a theft of the property of my neighbor.

In context, it seems that Hoppe is explaining the role of money as it pertains to fake receipts to property temporarily held by the bank (gold, silver, et cetera; money being substitutes for the property of depositors). Of course, misrepresenting the property the bank holds, in attempting to uphold a contract that states that such property must remain in the banks hands as the property is not the banks to begin with but is instead the property of the depositor, constitutes a fraud.

15

@Merlin: That’s downright silly. We don’t need to set up a model community to know that the government benefits from maintaining a monopoly on money, fiat money in particular, and that the benefits accrue specifically through the printing of money which would not be possible in the absence of a monopoly on money. All of these facts are apodictically true unless you believe that humans are not self-interested but are, in fact, selfless angels.

Clayton -

16

How is this apodictically true? This is exactly what I’m talking about: you assume that without legal tender no money which’s supply ever increased would achieve success in the market. How is that apodictically true?

Just suppose, for the purposes of the thread, that people turn out to prefer a currency which supply increases at a steady rate, if given the choice. Wouldn’t the issuer than benefit from the inflation it engineered? Would it be stealing?

17

You may have summarized it, but it’s more confusing than ever. You’re going to have to explain what you mean by “money behaves”.

18

Once again, if you would like to explain how “increasing one’s wealth at another’s expense” is not theft, I’d be interested to hear it.

19

@Merlin: Red herring. I’m not even making a “market versus state” argument, I’m simply pointing out that the government benefits from its money monopoly through money-printing and that this is apodictically true so long as it is true that humans are self-interested. Since the OP argument relies on the (unstated) assumption that government’s actions on the money supply do not benefit itself, the argument is simply false.

As for why there would not be inflation of fiduciary media in a free market in the production of money and money substitutes (expansion of the money supply would, of course, occur), I can’t believe I have to walk you through it step-by-step because you’re very smart. If money producer A can produce a money substitute with some kind of built-in inflation then money producer B can produce a money substitute indentical in every way except without the built-in inflation, thus reducing the use cost of B-money to customers vis-a-vis A-money. This is the nature of any market efficiency argument.

Clayton -

20

John James,

I was careful to examine that claim, and did so, in that post. Theft is the aggressive seizure of physical property; while inflation diminishes the monetary value of one’s property, in terms of the inflated currency, no aggressive seizure of property has taken place by the act of inflation and inflation cannot therefore be called theft. I already explained how it is argumentatively unjustifiable, with support from HHH, that one can claim property rights in the value of a good.