Inflationary Theft

Daniel Kuehn observes a weakness in the “inflation is theft” argument and makes a good point in the process.  His comment is in response to a line in a recent article in the Atlantic, “The Villain:” “President Grover Cleveland, a warrior against inflation (in his day, brought about by cheap silver), rightly likened a debasement of the currency to theft.”

Daniel responds, “Nobody has property rights associated with a stable value of money.”

Exactly.  Inflation ought to be judged based on its consequences.  The Atlantic article suggests that there are positive consequences which may justify what the author perceives as “theft” — employment (although, only during periods of recession).  I disagree, but judging the (de)merits of inflation is not the objective of this post.

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.

47 thoughts on “Inflationary Theft

  1. Phill

    “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.”

    This would be true if there wasn’t a monopoly on currency. When we outlaw competing currencies and devalue the only legal tender – then yes it is theft (more like a mugging really). But if we could move into and out of currencies as we saw fit; if we could trade with any commodity we wished, and if commodity/currency trading didn’t incite taxation: You’d be correct.

    Just my thoughts on the matter. The monopoly on money is the real culprit.

    1. Jonathan Finegold Catalán Post author

      I agree that a monopolized currency is a problem, but I still don’t see the problem as being one of theft. The problem deals with the economic consequences of a monopolized currency system.

      In any case, whether there are competing currencies or not, no currency will be able to achieve a stable value. Price stability, given the nature of the pricing process, is impossible. Changes in prices will benefit some and hurt others; it doesn’t mean that those who have been hurt are the victims of theft.

      1. Phill

        Really? You see the monopolization of money and the intentional devaluation of it as just, “not optimal?”

        The reason it is theft is because monetary policy is dictated at the whim of a tyrant that will always make decisions to maximize his own revenue. The monopoly on money is a mechanism forcing us, w/ violence, to use said currency.

        Stealing this value is no different than smashing someone’s home windows and claiming, “Hey, a fallen branch could have done that!”

        Well, yeah, but it didn’t.

        1. Phill

          This is in contrast to the fluctuation of the value of money based on actual market events, tastes, and preferences. Which, of course, is not theft.

        2. Jonathan Finegold Catalán Post author

          The reason it is theft is because monetary policy is dictated at the whim of a tyrant that will always make decisions to maximize his own revenue.

          That something is “dictated at a whim” does not make that thing theft. If a tyrant, at whim, decides that all women ought to wear head dresses this does not represent theft. In order to prove something is theft you are going to have to go deeper than just “tyranny.”

          The monopoly on money is a mechanism forcing us, w/ violence, to use said currency.

          Assuming what you say here is true, that we are forced to use one currency as defined by the government has nothing to do with whether or not inflation is theft.

          What people who call inflation theft is the loss in value from an increase in the quantity of money. This is a very specific argument. But, if this argument is true, then any loss in value caused by someone “tampering” with the value of money is theft — but, it isn’t.

          1. Pete Walker

            “Theft” is one party interfering with another party’s property rights. (We live in a society where “the social contract” meme dumbs-down most people about property and rights.) For instance in the 1800s greatly increased silver mining put more silver in the market, causing inflation. Most of the mining was voluntary, so the inflation mostly wasn’t theft. Inflating monopolized money is theft because it’s not voluntary. Theft depends on how the inflating is done, not the principle of inflation itself.

          2. Jonathan Finegold Catalán Post author


            I don’t think that’s right. Inflation was voluntary in the sense that it was private market agents who mined new silver (btw, caused by artificial price ratio fixing, between silver and gold, by the government), but that doesn’t mean that those who used silver coins voluntarily accepted inflation before it occurred. The introduction of new silver into the market, and the consequent rise in prices, occurred without the consent of the majority of third parties (i.e. currency users). Such consent, in any case, would be impossible to give.

            In both cases, the majority of users of currency are not “voluntarily” accepting inflation. They accept it because they have no other choice. It’s just a market phenomenon that they now have to deal with.

  2. Leonardo IHC

    “Nobody has property rights associated with a stable value of money.”
    If i got property rights on my money, I acquire a certain purchasing power based on how much money is in circulation compared to the availability of goods in consequence of demand/production shocks; I know I can risk that availability of goods varies, so I am well aware of the price risk I suffer when holding money… if a third entity varies the quantity of money in circulation, my purchasing power gets biased (new money somewhere competing with mine to chase same goods), which means that a third party is deciding to re-distribute my purchasing power without my consent; don’t call it theft, as I sound too “moralistic”, but you can call it coercitive redistribution, sort of a tax without being warned of its application… doesn’t it affect my property rights, then?

    1. Jonathan Finegold Catalán Post author

      On the market, prices aren’t only decided by supply. They are also decided by demand. In other words, when another individual who holds the same currency as you decides to, or not to, spend money towards a certain good, that individual affects the price of that good. That individual has some power over the pricing process and therefore some influence in deciding the distribution of resources. Inflation by a monetary authority might influence distribution in a relatively inefficient way, but this is a different argument than the moral one.

      1. Leonardo IHC

        dear Catalàn

        I ithink you don’t understand my point. I try say it again.
        First, I mentioned demand and supply shocks, never said it’s only a matter of supply, so let’s avoid certain kinds of comments.

        Second, when I talk about “redistribution” in this subject I do not mean “redistribution” of resources e.g. of the welfarist kind which is usually suboptimal, and is another subject like you pointed. I mean that newly printed money must go in the hands of somebody, maybe those who were already holding some money, and it affects their relative holdings. As, in a sense, the set of goods and services available does not vary from an instant to another like money supply does, while the total amount of money in the economy affects something we can call “price level”, the discretionary percentual redistribution of money involves a different individual percentual claim on goods and services, that is to say redistribution of purchasing power which affects my property right on money and what it represent (potential goods).
        This means I do agree it is not theft, but it may be called “coercitive/subtle redistribution” at the expensive of my property rights.

        Put it simplest:
        A got $300, B got $300 (50% of money supply each one), goods X availability is 300; after due exchanges we can expect A holding 150X so as B, at price $2.
        If Central Bank increases money supply to $900 and this implies new money in the B’s hands solely, so A got $300 and B $600; after due exchanges we can expect A holding 100X and B holding 200X, at price $3.
        The external re-setting of money supply has involved a coercitive re-distribution of real wealth independent on the stability of individual preferences (untouched here). You cannot call it theft, but you can say A’s property right on money, representing a certain amount of real goods, has been violated; a tax works in a similar way, but a tax would have told you both explicitly and in advance that your wealth would be partly withdrawn, so you can see money supply manipulation as a substantial violation of property rights.

        If so, why don’t we issue the State? The fact that you cannot legally issue Central Bank or Goverment for this violation depends on what I can call as “law priority”, I do not know how clear it is in a common law regime, but in our (continental) civil law regime it is evident: common people are subject to “civil codex” i.e. rights valid between privates (family rights, contractual rights…) while State and its entities refer to “public right” which is a higher order of right which prevails in case of contrast with private right. Then you have to give up to manipulations of property rights on money, which remains a violation of your rights.

        All this has got nothing to do with demand-side effects on prices, like you pointed; in this case prices vary because of different individual evaluations of goods, things you got no property rights on unless you have already bought them (but once you bought them, the prices are no longer your business).

        1. Jonathan Finegold Catalán Post author

          I understood your point. What I am saying is that is that it’s not theft (as you aptly said in your latest comment), and that any change in prices will change the distribution of goods. And, I wasn’t talking about welfare either.

          I don’t understand your argument with regards to common law and public law. What property rights with regards to money? You have a right to the ownership of tangible assets, like dollar bills. This doesn’t mean you have a right to the value of the dollar bill. In other words, ownership of the dollar bill doesn’t guarantee you that that dollar bill will always be exchanged with five packets of gum.

          1. Leonardo IHC

            I just mean that State gave you some money, or imposes you to use that money to settle economic relations; that piece of paper has got a value in terms of how much goods and services you can buy by it: at the very moment you receive the money (from the State directly or from another guy who’s imposed to use that money too), you know (or should, or could) how much goods and services that money is equivalent to depending on the existing prices; this is why you accept a certain amount of money for your works or performances (an equity/fairness valuation) but not a lower one: you estimate your effort in terms of what you can really get by its reward.

            Of course, prices are not stable, individual preferences move relative values and prices continuously (so your purchasing power varies) but it is a matter of private relations only. Instead, when State issues more money, it directly – at its sole will – biases existing purchasing power ratios (this is the sense of the example above), and you can say the State has changed the terms of the original pact: so much (nominal) money, so much (real) power. As you have initially accepted its money given the “goods in it”, now the “goods content” has changed, not because of free individual will coordination but ’cause of unilateral State will.

            There is no theft, but an imposed wealth redistribution via unilateral violation of an original fairness pact. It would be the clearest if you were paid $300 equal to 150x which is just enough to live, but a second after the settlement the State increases money supply so that your $300 get equal to 100x which is not enough to live… You can hardly say you had no (property, in my opinion) rights which have just evaporated ’cause of coercion.

            A private money issuer would be likely called to respont for this unilaterally redistributive imposition (or, in case of free monetary competition of the Austrian kind, would be punished by people abandoning this inflated money); but State would be never be issued because he “lives” on a higher level of rights which prevails on private rights, in a sense it is out of private jurisdiction.

          2. Jonathan Finegold Catalán Post author


            This is what this post is all about. You were never guaranteed some value in your money in relation to other goods, but this type of guarantee is impossible. Given that a stable value of money was never guaranteed, it doesn’t make sense to call deviations in the value of money fraud.

            Nobody is claiming that inflation doesn’t change the distribution of wealth. This was never in argument — indeed, this is why I said we should judge inflation on its consequences.

    2. Daniel Kuehn

      It certainly affects your purchasing power, but I don’t see how it affects your rights if you never had a right to a stable purchasing power in the first place.

      You are in good company calling it a “tax”. Keynes called it a tax. That’s a better word than “theft” I think.

      1. Leonardo IHC

        “Given that a stable value of money was never guaranteed, it doesn’t make sense to call deviations in the value of money fraud.
        this is why I said we should judge inflation on its consequences”

        dear Catalàn,
        the stability of the value of money cannot be granted because (you know it very well) supply of goods and invidual valuations change continuously, so it is sure there is no guarantee; but as we talk about inflation (supply inflation, not price inflation which is a consequence) we have to admit that the fiat money issuer is able to immediately depreciate what he has just given you. There is an implicit pact where the issuer says “given the current price system and money I have just supplied, your work value amounts to X goods, so I give you payment means able to buy that stuff, trust in me” while, once the payment is settled, the amount of money gets increased with the consequent redistribution effects of the Cantillon kind.
        While no warranty on a stable purchasing power can ever be provided, we could anyway claim a right that the issuer does not to unilaterally change the terms of the exchange of money for goods. Like I said, it is like an opaque and not announced tax to finance the redistribution of wealth; whatever the effect, as a tax cannot be introduced in disguise, we should not accept this inflationary tax too.

        You focus on the “Cantillonian” effects; I have made just a step backwards to highlight that this is the consequence of an unfair action – violation of a pact, if it were between privates – allowed for by a “special right” fo the monetary agent of the State.

        Call it coercitive redistribution, if we recognize the State right to do it.

        (now stop, i have bothered you enough)

        1. Jonathan Finegold Catalán Post author

          I’m not sure there is any implicit agreement of the sort you’ve described. I think that’s just something convenient that we’ve imagined so we can accuse the government of theft. In fact, the Federal Reserve’s mission is explicitly stated (and it includes guaranteeing full employment, which in the opinion of some includes targeting inflation).

  3. Bob Roddis

    I disagree completely. The fact that your house may fluctuate in market value does not mean that theft of your copper piping is not theft. The entire operative mechanism for Keynesian policy is to surreptitiously steal and transfer purchasing power without due process or equal protection of the law and without the victims knowing what hit them. And having an active intelligentsia screaming that the theft one sees with one’s own eyes is either not happening or is not wrong. What the Fed system does is the equivalent of debasing gold and silver coins. As Ron Paul and I have pronounced at various times, the Founding Fathers would have executed Bernanke pursuant to Section 19 of the Coinage Act of 1792:

    Section 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.

    People are MISLED because someone has fraudulently misled them with a form of embezzlement and fraud.

    This is just typical D-Kuehnian doubletalk and BS.

    1. Jonathan Finegold Catalán Post author


      I understand the sentiment, but again, I think you are attacking the wrong thing.

      I don’t get the house analogy (with the copper pipe theft and whatnot), but like I said in another comment above, any fluctuation in price will change the distribution of goods in the market. These fluctuations in price will take place without individual actors knowing how they took place and who influenced them — in other words, these fluctuations too are made independent of the wants of individual market agents. All these changes occur without “due process of law.”

      Government induced inflation has many negative consequences. The problem is with these consequences, not with the fact that changes in the supply of money will lead to changes in prices.

      1. Bob Roddis

        In an analogy to a private commodity money issuer, no one can predict the relative value of the monetary unit over time vis-a-vis other commodities and services. However, I would presume that the contract with the bank would preclude purposeful surreptitious debasement of the monetary unit. If you’ve picked the wrong commodity, the wrong type of money or the wrong banking company, then the loss falls upon you. If your bank was criminally and/or negligently at fault for the loss, you may have a cause of action.

        I frankly do not understand the claim that purposeful government inflation is not theft via fraud. It is purposeful government action intended to swipe and shift purchasing power. Is it allegedly not “theft” because if the government does it, it can’t be a crime? Because Congress created the system? Is it because everyone should know and understand what’s really going on with the continuous debasement and thus it serves them right [granny]? Is there an admission that the “theft” is really functionally and operationally occurring but that it’s somehow OK and not wrong and/or immoral?

        There are also a ton of Constitutional arguments in support of money as a fixed amount of gold or silver which I can make later with some extra time.

        Actually, I thought DK’s latest article about the 1920 depression where he emphasizes that the 1920 price distortions were caused, not by the market, but by the Fed accommodating WWI, had settled this issue. A major reason for creation of the Fed was to allow the funding of the war without the citizens realizing what was going on and so they would not be so alerted to the cost if instead they had to be taxed immediately to provide the funds for the war. The system is based upon fraud and deceit.

        1. Daniel Kuehn

          re: “I frankly do not understand the claim that purposeful government inflation is not theft via fraud”

          Who is being defrauded Bob! It’s not fraud because things don’t work out how you wanted them to work out.

          re: “Is it allegedly not “theft” because if the government does it, it can’t be a crime?”

          That has nothing to do with it. In a free banking system, inflation would not be theft either.

          re: “The system is based upon fraud and deceit.”

          It’s kind of hard to argue that it’s deceitful if the powers of the Fed are out there in the open for everyone to see.

        2. Jonathan Finegold Catalán Post author

          Like I’ve said earlier, a free monetary system would not lead to a stable monetary value. There would be losses (and gains) in the value of currency. These losses and gains are not fraudulent — they’re just part of how the market process works.

          Neither do I defend government from the accusation of theft on the basis that it is government and therefore everything it does is legal. I use the word “theft” in these cases fairly literally: theft is denying others use of their own property. But, nobody is denying you use of the dollar. What is happening is that the value of your dollar is fluctuation.

          Is it theft when you buy a house for $300,000, and suddenly the market value falls to $150,000. Is that a theft equivalent to $150,000? In other words, does the fact that your property fall in value constitute theft? I don’t think so.

          What is happening here is linking inflation with the state and crying theft, but theft is a very specific event that is not synonymous with all state action (even if the state does commit theft by other means).

    2. Daniel Kuehn

      re: “The fact that your house may fluctuate in market value does not mean that theft of your copper piping is not theft.”

      Right. And the minute Ben Bernanke takes your wallet and appropriates one of the bills you have in there, I will be screaming bloody murder with you. But until that day, this point is irrelevant.

      On the coinage act – I’m no lawyer, but I think you’d have a good legal case against the Federal Reserve in 1792. Here’s the thing: you wouldn’t have a good legal case against the Federal Reserve after 1913.

      1. Bob Roddis

        So, do we agree that the policy results in a shifting of purchasing power which is morally and legally OK with you for the reasons stated?

        1. Jonathan Finegold Catalán Post author

          Whether it is morally okay is a different question. It doesn’t have to be theft to be immoral. I am a moral skeptic, but it may be some may consider inflation to be immoral.

  4. Mattheus von Guttenberg

    Inflation is fraud, not theft. Daniel is right – we do not have a right to a stable purchasing power. We implicitly accept the inherent risk in using any money that its value will change over time, up and down. In our day, inflation is done through a monopoly currency which requires some type of aggression to maintain. So there’s that. But the actual process of inflation – of eroding the purchasing power of a given unit of money – is not theft. I think it’s fraudulent, but that’s a whole other kettle of fish.

  5. Jim

    Is personnel counterfeiting not immoral either then? If I were to print up a good facsimile of a hundred dollar bill and use it to buy goods, is that okay? Or is there a good moral argument against that?

    1. Jonathan Finegold Catalán Post author

      It seems to me that the crime with counterfeiting is against the vendor, or whomever you’re exchanging with. It’s not so much of an issue of gains or loses in the value of currency, but giving another person a false currency in exchange for goods and/or services. This is real fraud, where you have exchanged a currency as a real one, so when the vendor (or whoever ultimately gets that currency) attempts to deposit it, the bank recognizes it as a fake and that person is cheated (by the counterfeiter).

  6. Lord Keynes

    Some related points:

    (1) In a situation of depression, significant idle resources and unused capacity in an economy open to international trade, the primary effect of deficit spending is to increase output and employment, not cause price inflation, which will be a secondary effect.

    (2) The empirical evidence from the real world shows that in many industries prices are set by price administrators/price setters, not supply and demand dynamics. Prices can remain stable for long periods of time regardless of central bank induced changes in base money.

    (3) “Inflation ought to be judged based on its consequences.”
    You are entirely right. If this is supposed to a moral/ethical statement, it also requires a consequentialist type of ethics – not Rothbard’s natural rights fantasy.
    Even if it were restricted to economic consequences, then it is obvious that the concept of externalities (indirect effects of a transaction on people other than the contracting parties) is relevant as well.

    (4) But once you have conceded that consequences and externalities are relevant in (3) you have opened the door to all sorts of government interventions on the basis of negative externalities.
    You want to stop government from inflating base money, because allegedly its bad consequences (and negative externalities) outweigh good consequences?
    Then I can justify numerous other government intervention where I see good consequences (and positive externalities) outweigh bad consequences (and negative externalities).

    1. Jonathan Finegold Catalán Post author

      I have written on externalities before. There are cases where the correction of externalities is in order, but for all the cases that I know of this type of interventionism comes from the court system (which, conceivably, could be replicated on the market). For example, damages which externalize costs to the victim.

    2. Hoodnick


      Have you ever work in manufactoring companies before. I have worked for three. Sales price where I work at are based on supply and demand. We charge prices based on what the customer is willing to pay. We do not sell if our operating profit margin is less then what can cover all cost plus a markup.

  7. Eric Evans

    It would be really nice to know how both you and Daniel define ‘inflation’, since how I would define inflation does not (and frankly, cannot) lead to such a conclusion.

    1. Jonathan Finegold Catalán Post author

      It doesn’t matter how you define it. What is considered theft is the change in value of the currency you hold — this is talking about prices. The Austrian focus on changes in the money supply is to emphasize causality between increases in the supply of money and changes in the general price level.

  8. Bardhyl Salihu

    I don’t know if anyone already said it because I wasn’t bothered to read all the comments, but there *can* be a deontological property-rights defense of the notion that “inflation is theft.” Take for example the case in a commodity standard where one simply prints banknotes and exchanges them for real property. This is a clear case of fraud because the person handing over property is doing so under the belief that he is getting claims to a redeemable commodity. In reality he is just receiving a piece of paper created out of thin air. It is in this sense that some libertarians consider inflation theft.

    1. Jonathan Finegold Catalán Post author

      Like I told Jim, the crime here is counterfeiting, not inflation per sé (loss in the value of currency due to a rise in prices).

      1. Bardhyl Salihu

        True, but inflation is counterfeiting by definition. Consider a baker who produces and sells bread. He is exchanging real goods for money. And if he uses that money to buy something, it will be the bread (his produce) which allows him to do so, not money per se. The role of money here is just as a medium of exchange.

        Now consider a counterfeiter who prints banknotes and buys bread. Is he producing any real goods in exchange for it? No, he is getting something for nothing. So yes, inflation is a counterfeiting process and as such it violates property rights.

        1. Jonathan Finegold Catalán Post author

          True, but inflation is counterfeiting by definition.

          This is a strong assertion that I don’t think a lot of people would agree with, unless these people already concluded inflation is theft and didn’t bother looking at the argument in between.

          You can’t counterfeit the supply of money which you control. It’s not counterfeit, for instance, for an independent bank to issue its own bank notes.

          Counterfeit is an illegal, or unauthorized, attempt mimicking currency.

          Btw, no money enters circulation as a result of the “production of goods,” other than the fact that money is a good itself and must be produced.

  9. Jonathon Hunt

    From what I understand, “inflation is theft” because there is an illegitimate exchange taking place; this is embezzlement, which is sometimes simplified as “theft by fraud.” The act of embezzlement is basically what Bardhyl stated above. It would seem that changes in the PPM (inflation or deflation) is theft when it is not the result of market interactions, which is surely the opposite of what happens when the Federal Reserve randomly increases the money supply. The reason why the market is exempt from this is very conveniently explained by a recent Mises Daily article from Shostak,

    “Now, let us say that on a gold standard, because of an increase in the production of gold, the supply of money — i.e., gold — has increased. Subsequently a general increase in the prices of goods has taken place. Should we label this increase as inflation? According to some commentators on the gold standard, an increase in the supply of gold generates similar distortions that money out of thin air does.

    Let us start with a barter economy. John the miner produces ten ounces of gold. The reason he mines gold is because he believes there is a market for it. Gold contributes to the well-being of individuals. He exchanges his ten ounces of gold for various goods such as potatoes and tomatoes.

    Now people have discovered that gold, apart from being useful in making jewelry, is also useful for some other applications. They now assign a much greater exchange value to gold than before. As a result, John the miner can exchange his ten ounces of gold for more potatoes and tomatoes.

    Should we condemn this as bad news because John is now diverting more resources to himself? No, what is happening with John the miner is just what is happening all the time in the market. As time goes by, people assign greater importance to some goods and diminish the importance of other goods. Some goods are now considered as more important than other goods in supporting people’s lives and well-being.

    Now people have discovered that gold is useful for another use: to serve as the medium of exchange. Consequently they further lift the price of gold in terms of tomatoes and potatoes. Gold is now predominantly demanded as a medium of exchange — the demand for other services of gold, such as ornaments, is now much lower than before.

    Note however, that gold is a part of the pool of real wealth and promotes people’s lives and well-being. Let us see what happens if John increases the production of gold.

    One of the attributes for selecting gold as the medium of exchange is that it is relatively scarce. This means that a producer of a good who has exchanged this good for gold expects the purchasing power of his effort to be preserved over time by holding gold.

    If for some reason there is a large increase in the production of gold, and this trend persists, the exchange value of the gold will be subject to a persistent decline versus other goods, all other things being equal. Under such conditions, people are likely to abandon gold as the medium of the exchange and look for other commodity to fulfill this role.

    As the supply of gold starts to increase, its role as the medium of exchange diminishes, while the demand for it for some other usages is likely to be retained or increase. So in this sense the increase in the production of gold adds to the pool of real wealth.

    When John the miner exchanges gold for goods he is engaged in an exchange of something for something. He is exchanging wealth for wealth. Also note that an increase in the supply of gold didn’t occur because of an act of diluting gold but because of an increase in gold production.

    Contrast all this with the printing of gold receipts, i.e., receipts that are not backed 100 percent by gold. This sets a platform for consumption without making any contribution to the pool of real wealth. Empty certificates set in motion an exchange of nothing for something, which in turn leads to the misallocation of resources and to boom-bust cycles.

    Remember, an increase in the supply of mined gold doesn’t lead to the misallocation of resources, i.e., employment of resources contrary to the true free market, which reflects consumers’ most urgent preferences. Note again that the number of coins increased here is not because of the dilution of gold coins but as a result of an increase in the production of gold, i.e., real wealth. In contrast to the holder of money out of thin air, the wealth generator — the gold producer — supports his own activities. He is not engaged in the diversion of real resources from other wealth generators by means of empty money. Consequently, any decline in the amount of money out of thin air is not going to hurt him. (Note a decline in the money out of thin air will reduce the diversion of resources to activities that emerged on the back of money out of thin air.)”

    It seems to me it’s not a property right to a stable value of money per se, but there is still an act of theft taking place as shown above.

    1. Jonathan Finegold Catalán Post author

      I have criticized Shostak before. If DeLong was to make the case he did against Mises (wrongly equating Mises’ view a cost of production theory of value to explain why gold is preferred to paper currency) against Shostak, DeLong would be correct this time. That currency is gold doesn’t change its relationship with the market process — money is money, whether it’s gold or paper. What makes gold a better currency is that it’s difficult to produce, meaning in order to devalue it you have to clip it and there has to be some sort of fiat exchange ratio standard to guarantee its value.

      Paper currencies, btw, are also valued for exchange, just like gold. Shostak is making a very, very erroneous argument in favor of gold.

      1. Jonathon Hunt

        I believe you misread Shostak here. He’s not saying that the value of gold is determined by the cost of producing it, but he is merely demonstrating how increasing the supply of gold is not inflationary. Also, you did not offer an argument (or point to where you have) as to why fiat money is equivalent to market money; that seems inconsistent with the Austrian paradigm. That whole excerpt was Shostak demonstrating how market money, which is gold here, differed from the fiat money. Again, I agree with you and DK that no one has a property right to a stable value of anything, yet the point that should be taken from here is that inflation is theft for another reason. Specifically, inflation is theft when someone does not become involved in exchange but merely takes a good or service; i.e., he does not contribute to the pool of real wealth. This implies that he is stealing, considering he is taking “something for nothing.”

        1. Jonathan Finegold Catalán Post author

          If you think it’s inconsistent, read The Theory of Money and Credit or Human Action (alternatively, read Rothbard’s explanation for the European price revolution, in the first volume of his history of economic thought — he blames it entirely on the importation of South American gold and silver by Spain). There were business cycles before the existence of banknotes and fiduciary media.

          The only way you can justify Shostak’s argument is if you assume that gold is intrinsically free of inflationary effects because it’s being mined by labor, i.e. the free market. This is, effectively, a cost of production theory.

          Stealing is not “taking something for nothing.” Stealing is taking someone else’s property without their permission.

          1. Jonathon Hunt

            Sorry it took me so long to reply back, but I frankly forgot about this post lol. I feel I must clarify myself, since I believe you are misinterpreting what I, of which I mean mainly Shostak (lol), are saying.

            Anyways, I have not read The Theory of Money and Credit but have gotten through part of Human Action. Regardless, from what I have read from secondary sources, such as Murphy, Polliet, North, etc., Mises made a few distinctions about money. Here’s what I learned from North:

            “Mises said that there are four kinds of money: token (base metal) coins, commodity money, credit money, and fiat money (pp. 59-62). Commodity money is what the free market has determined is the most marketable commodity, and therefore the medium of exchange. It is “a commercial commodity.”

            We may give the name commodity money to that sort of money that is at the same time a commercial commodity; and the name fiat money to money that comprises things with a special legal qualification. A third category may be called credit money, this being that sort of money which constitutes a claim against any physical or legal person. But these claims must not be both payable on demand and absolutely secure; if they were, there could be no difference between their value and that of the sum of money to which they referred, and they could not be subjected to an independent process of valuation on the part of those who dealt with them. In some way or other the maturity of these claims must be postponed to some future time (p. 61).

            Mises’s definition of credit money distinguishes credit money from a receipt for money. Credit money is not “both payable on demand and absolutely secure.” It is not the same as that which we can call warehouse receipts for commodity money, in which case “there could be no difference between their value and that of the sum of money to which they referred.” In Human Action, he defined a warehouse receipt for money metal coins a money-certificate. “If the debtor — the government or a bank — keeps against the whole amount of money-substitutes a 100% reserve of money proper, we call the money-substitute a money-certificate” (p. 433). A money-certificate is both payable on demand and secure. It is not a promise to pay at some date in the future. It is a promise to pay immediately on demand, a promise that can be fulfilled in all cases because there is money metal on reserve to meet all of the receipts even if they were presented for redemption on the same day. Money-certificates function as money because they are the equivalent of the commodity money that they represent. For each money-certificate issued, the equivalent weight of coins is withdrawn from circulation. “Changes in the quantity of money-certificates therefore do not alter the supply of money and the money relation. They do not play a role in the determination of the purchasing power of money” (p. 433).

            Credit money is money that has less than a 100% reserve in coins. “If the money reserve kept by the debtor against the money-substitute issued is less than the total amount of such substitutes, we call the amount of substitutes which exceeds the reserve fiduciary media. As a rule it is not possible to ascertain whether a concrete specimen of money-substitutes is a money-certificate or a fiduciary medium.” Fiduciary media increase the amount of money in circulation. “The issue of fiduciary media enlarges the bank’s funds available for lending beyond these limits” (p. 433).

            Money is a commodity, Mises insisted. It is not a promise to pay. Fiduciary media is a promise to pay. It is a promise that cannot be fulfilled at the same time to everyone who has been issued fiduciary media.”

            As I said earlier, I’ve not dived into The Theory of Money and Credit to double check his interpretation, so feel free to correct me if you believe his interpretation to be false.

            Shostak argued that it is free of inflationary* effects due to its dual role as medium of exchange and role as a simple consumer good. When the supply of gold increases, then its usage as the medium exchange diminishes while simultaneously increasing its usage for another purpose. Thus, it can not cause an increase in prices due to the fact that the previous increase in the supply of gold is in response to the demand for its other use, e.g. filling your teeth. He lated states that if such a trend persists, specifically that gold is now being demanded for other uses instead of a medium of exchange, then other goods will be sought after to be used as new money. Also, I’m not seeing how you are interpreting this as a cost of production theory of value. You would have to elaborate on this point for me to go any further. As I said earlier, this has nothing to do with the property right to a stable value of money; this is theft for another reason explained below.

            “Taking something for nothing,” if my interpretation is correct, meant that the person embezzled that money by fraudulently converting the usage of that money into his own. He specifically converted its usage by using it to fund an activity where he did not bear the costs, considering the original owner of the money bears the costs. This is by definition embezzlement. The person knowingly or mistakenly took such a good and disposed of it without prior consent from the owner; this simply amounts to theft by all accounts.


            *To possibly avoid a future mininterpretation, I’m getting the sense that you are conflating a “general increase in prices” with the definition of inflation in the way Austrians generally use it, specifically an expansion of the money supply.

          2. Jonathan Finegold Catalán Post author


            Again, I point you to Rothbard’s explanation for the European price revolution of the 1500s and 1600s — he blames it on the import of South American gold and silver. Whoever says that an increase in the supply of commodity money will not lead to a rise in price is wrong, both theoretically and empirically. We have plenty of empirical evidence that shows that an increase in commodity money will lead to at least some increase in the quantity of money in circulation, meaning that an increase in commodity money will lead to a rise in prices.

          3. Jonathan Finegold Catalán Post author

            Also, I have said this before. Mises wanted the reader to look at an increase in the supply of money, because he wanted to causally link an increase in the supply of money to a general rise in prices. He wanted to do away with belief that general price inflation could be caused by other factors.

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