Inflationism: Economically Damaging



Allrik Birch.

Inflationism isn’t something new, as I’ve mentioned in my set of 1873 posts, the “free silver” movement was based upon the concept. There will always be those who want to increase the supply of money to fulfil their own ends. In the modern academic world there are plenty of scholars who propound inflationist ideas – always thinking that inflation can be controlled. However, there will always come a point when hyperinflation hits, causing massive dislocation to the economy. Even in small doses, this damage is done, causing misallocation of resources between different sectors of the economy.

What do I mean by “inflationists”? What I mean are those who propose increasing the money supply to fix fiscal or other ills, going beyond “stable money” proposed by monetarists of various guises in the post-war era. Why is this bad? Well, increasing the supply of money does not increase wealth, as money, especially fiat money is only a representation of wealth. If you have the same amount of goods but more money, it will cost more to buy things. This is very basic economics. However, there are those who think the disincentive to save (through making savings worth less over time) from inflation increases economic growth, and thus it is worth the cost. The problem with this analysis is that the saved money does not just sit there. It is typically lent out to businesses and individuals, allowing investment in what the lender sees as valuable activities. Savings are a driver of long term investment, without savings, the economy will become stagnant.

Various reforms to the banking system have been proposed, time and again, to deal with real or perceived problems with the aforementioned system or simply to encourage “growth”. Like with the “Greenbacker” (named for the green backed paper dollars used in post-civil war US) movement, they tend to grow when recession hits. Often these are inflationists, with proposals being almost specifically designed for centrally controlled inflation. The current incarnations coalesce around the idea of “debt-free” money, sponsored by people like Ellen Brown (of Web of Debt fame) in the US and Positive Money in the UK. Those in the American mould also have a worrying tendency to be linked to anti-Semitism (often in the guise of being anti-Rothschild) and conspiracy theories. To clarify, I have not seen this side to the Positive Money group in the UK or Ellen Brown herself, but I have seen various statements of a similar nature on forums and elsewhere.

I firmly believe these groups are actively dangerous – they preach that inflation is not a problem, that centrally planned money is best. There is a worrying tendency among some to believe in the “International Banking Conspiracy”, which easily morphs into the “International Jewish Banking Conspiracy” in the darker areas of the World Wide Web. For those who think I’m going too far in linking anti-Semitism, simply google image search “Bank of England Rothschild” flick through. This is not to say that those who propose monetary reform, or are against central banks or even inflationists are anti-Semitic, far from it. I myself do not think central banks are a necessary or good idea. However, those who want reform should be very wary of who they are on a platform with, and what those people are saying. The conspiracy theories and especially anti-Semitism are serious issues which, if nothing else, make serious monetary reform less likely to occur. At worst, these groups are actively dangerous. Judging by the rise of neo-Nazi groups in countries like Hungary and Greece, I think these concerns should be taken seriously.

Inflationists often believe central banks are bad because they are private. Like the Bank of England however, they are often government bodies.

The inflationists often believe that central banks are bad because they are private; whilst a cursory look at the actual facts shows that even when nominally private, central banks are government bodies. The Bank of England, which was originally a private institution, was nationalised in 1946 and has been 100% government owned since then. Inflationism in all it’s various guises is economically damaging and concerning. It is troubling that a number of libertarians get caught by Positive Money/Web of Debt or other inflationist groups, seeing them as a viable path for monetary reform. Positive Money has strong links with the new economics foundation and attacks people such as Steve Horwitz for a reason. They are not libertarian, especially not of the Austrian school, they are for big government control of money and high spending.

Do not be caught out thinking that this is anything other than what it is, a populist left-wing argument for more inflation and tighter government control of the economy, designed so that the government can spend more on welfare and whatever else. I don’t doubt that the proponents honestly believe when they say their system would not be inflationary, but all the evidence in history says that it would be. Such systems in various guises have been tried many times before, they have never worked. Positive Money/Web of Debt and similar groups are nothing new or original, their historical and economic analysis is deeply flawed and they would result in high inflation if implemented. Everyone, and especially libertarians should be wary of those promising the world through monetary reform and government zero-interest loans. It is a dangerous, populist and if implemented, it will not end well.

For further reading, the excellent Gary North takes Ellen Brown apart far better than I ever could, see that here: whilst Detlev Schlicter takes apart Positive Money here: & Also Tim Worstall on Positive Money: For taking apart of Rothschild conspiracy theories, see here: and finally Steve Horwitz on the Federal Reserve and conspiracy theories:


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