Theft as Economic Policy

It is one of the intended evils, no illusion.

People work longer, other sources meant putting the wife to work, which meant that no one tended their responsibility as parent, passed it off to someone that cared only for a pay check. Great feeder to welfare programs when sally got pregnant after school when no one was home. ruining her life in most cases or the family. You always have that 10%, and that is all it takes if that much. All for chasing 30 days bill payment times, the months never indexed to the inflation. NOT many can catch up to take a breath. People worked weekends, quit going to Church, more and more damage was done. Monitary problems the #1 direct source of divorces then caused marital strife and infidelity, for the grass is greener on the other side of the fence when it is usually crab grass.

The economic evils done to people by intended inflation and then deflation cannot be calculated. You don't see what is attacking you. It would be more humane to put a gun to peoples heads than the stress and economic turmoil people are suffering today. We are stunted and lost as a nation today because of it. If the people understood the injustice done to them and what it is going to do to their sons and daughters because of it, there would be revolution within the hour.

Charles Brezina
Antifederalist
antifed@comcast.net

It has seemed to me over the past 60 years of working that inflatioary conditions tend to increase the labor "supply" by virtue of people working longer, or seeking more sources of income, etc.

Is that an illusion?

America has never had a "gold standard", gold has always been set in relation to silver-that is a silver system. If we had a gold standard the bankers would have had to take the silver coinage and certificates in payment for printing the federal reserve notes March 6, 1933.

The Barter system of exchange is exactly what most of those in discussion say they prefer. Our Constitution prevented different mediums of exchange and set it at COINAGE as the foundation of the barter and gives you the Right to contract. However to keep economic stability throughout the land taxes and certain obligations had to be paid to government in that set value silver. Government had to PAY into circulation its obligations for those specific jobs demanded by the Constitution. To Borrow on the credit of the United States was the United States Note and when you accepted it YOU could take the Note to the Bank and redeem your Note. There was NO interest charged for its circulation and once the Note was exchanged for the silver coinage it was then SUNK, meaning destroyed from circulation. As there was no interest charged to the people for their own credit, the US Note was called the "Lucky" Bill.

BTW, when I was growing up there were 5 mediums of exchange circulating among the people at par. I didn't know it at the time but Sherman, Jefferson, Franklin and many others warned that should that situation be seen, you would end up with the one you needed least. We did, we ended up robbed by the federal reserve note that was NOT redeemable. They stole at par my mom and dads saving for retirement, meaning their purchasing power. Great deal for the bankers. We ended up losing near everything. People didn't see the sky fall, but it did. Bad money runs out good money, bad labor runs out good labor. Inflated exchange will steal your Life's hours, the product you purchase become cheap not inexpensive.

Charles Brezina
Antifederalist
antifed@comcast.net

I no longer refer to this as theft.

I now prefer to call it "conscription".

In the case of inflation as a means of monetizing the dept, we could think of it as concealed conscription.

It's implied default is what it is.

I also find the theft argument unsatisfactory, but then again I find the inflation = easier to pay nominal debts argument to be a bit silly too. The basic argument is that because inflated dollars are worth less, paying nominal debt obligations is less costly. This seems laughable at face value.

First, if your dollars are now worth less, and your wage is fixed, you essentially are earning less. So, while it is true your debt payments are less costly in real value, the remainder of your income has lost it's value. It's difficult to say what the net result is without some idea of debt payment/income ratios.

"It's way too simplistic (and just plain wrong) and is also a convenient theory for econ-wannabes to justify what they already believed."

Keynesian economics is little more than a convenient theory used by politicians and simple-minded educated idiots to justify the government spending huge sums of money based upon political whims.

Don't forget, the huge sums of money also go toward paying Keynesian economist's salaries. :)

Pingry wrote: "I am, however, pretty intolerant of Austrian macro. It's way too simplistic (and just plain wrong) and is also a convenient theory for econ-wannabes to justify what they already believed."

It is odd that an avid aggregationist would assert Austrian macro to be "simplistic." One of the key complications that Austrian macro focuses light upon is the structure of capital across stages of production (and commensurate allocations in associated labor markets). This is unlike the simplistic aggregate demand-aggregate supply theory where there is a monolithic K (capital) and L (labor).

To me Pingry's comment suggests that he is: 1) ignorant of the specifics of capital based macro; 2) knows the specifics, but has been disingenuous in his post; 3) a true believer in his model; and/or 4) believes that mathematical existence proofs are in and of themselves prove the truth of a theory.

I could go on, but suffice it to say that I find Pingry's bold condemnations of alternatives to whatever rolls off his keyboard illogical.

As Hayek would say, all those equations ignore human action. The central economic planners of this country have been about as successful at managing our economy as weathermen are that try to predict longterm weather.

Yes, but they have done MORE damage than weathermen.

"How did politicians ever come to believe this weird idea that the law could be made to produce what it does not contain — the wealth, science, and religion that, in a positive sense, constitute prosperity? Is it due to the influence of our modern writers on public affairs?

Present-day writers — especially those of the socialist school of thought — base their various theories upon one common hypothesis: They divide mankind into two parts. People in general — with the exception of the writer himself — form the first group. The writer, all alone, forms the second and most important group. Surely this is the weirdest and most conceited notion that ever entered a human brain!"
--Bastiat

Human action can be ignored because people are clay to be molded by social engineers. All you need is the right people creating the right laws with enough power to enforce them, and everything can be centrally planned.

/sarcasm

The resulting devaluation of the dollar transfers wealth involuntarily from creditors (and dollar holders) to debtors – the biggest of whom these days is Uncle Sam.

At first glance, the policy seems to favor debtors over creditors, but the inflationary extensions of credit, fueling inflationary income increases, can favor creditors if debtors would otherwise default. I'm very skeptical of any state policy favor debtors over creditors, particularly while Goldman Sachs and the Fed hold perpetual title to the secretariat of the Treasury. Inflation bailing out debtors can also bail out creditors, and the evidence of creditor bailouts is overwhelming.

Although I disagree with you, it's really irrelevant who gets bailed out - be it creditors or debtors. The government shouldn't be trying to bail anyone out. It should leave the economy alone. Markets function better without government involvement. Bailing out failed people/companies/government creates moral hazard and sets the stage for it to happen again. The more negative consequences you take away from failure, the more risks people will take. When did America become a place where everyone is so afraid to fail? What happened to our spirit of independence and freedom? Everyone seems to have their hand out these days and nobody even questions it.

The concept of freedom has been turned on its head.
Once freedom meant making choices and being responsible for the consequences. No more.
Now freedom means being free from choices, they are made for you.
Now freedom means being free from responsibility, it's not your fault.
Now freedom means being free from consequence, someone will take care of you.

Land of the free? Depends on how you define freedom.

"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom - go home from us in peace. We ask not your counsels or your arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that you were our countrymen."

- Samuel Adams (http://cafehayek.com/2010/02/the-principal-prin...)

ckohtz, well said!

It does seem this kind of theft is even the GOAL of governments that are willing to take on such enormous debt. And naive journalists are just following along like sheep. Someone once said, "Lawyers are first-class liars, politicians second-class, and journalists third-class." This WSJ reporter does seem to be about as cheap as they come.

Don,

I saw that too. Thanks for bringing it to peoples' attention. The point that the WSJ article misses, as well as many of these comments, is that there is no need for the government to be in the money business at all. We do not need a gold standard or any other artificial method to keep governments honest. All we need to do is rescind legal tender laws. When people contract on whatever basis of exchange they prefer instead of being forced to recognize the government's fiat money, we will soon seen what holds value and what does not.

Terry

Don't confuse points that are "missed" with points that are disagreed with, Terry.

Your wages are your property, these wages reflect hours in a day of YOUR Life, and those days can never be returned to YOUR Life. READ IT AGAIN!

Inflation is a tax on your Life, your Liberty and your property. To attack any one of the three attacks all three. When you can't purchase weeks later what you could the day you EARNED your wage, you have been robbed. You didn't see the thief, the thief was government because they knew when they allowed the fractional system of today by the Federal Reserve that it was and is,a swindle.

Roger Sherman was lone responsible for the coinage act of the US Constitution, Article 1 Section 8 clause 6, " to coin money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;" Please note the proper nouns and note there is not one provision that allows them to print paper currency. Matter of fact it was that the States could NOT emit bills of credit, no where does is say they could, not even implied.

Roger Sherman wrote a booklet in 1752 Titled "A Caveat Against Injustice" or the Evils of a Fluctuating Medium of Exchange. The bankers of england with their Federal Reserve, a private, for profit, corporation call the created paper "elastic" which is the same thing as "fluctuating".
Bankers and Government don't care about inflation because they end up with everything with "deflation" which can be manipulated the same as the upward "inflation. If you allow government and bankers to run your economics first by inflation and then by deflation, you'll end up homeless in you own land that you labored for your ENTIRE LIFE.

Let that bother you a great deal, no arguement!, that is what it does and was designed to do. Enrich a select few at the expense of EVERYONE else and I don't care if your name is Bill Gates. (That guy is under attack and doesn't know it, it will just take a little longer to destroy him, My opinion)

As Charles Lindbergh Sr. had warned, tell me the interest rate charged by the Fed and I'll tell you the date you go bankrupt...that date was March 6. 1933. YOUR family was declared enemy of the state to cancel the gold certificate contracts and collect all the gold coinage owed for printing PAPER!!!
Richard Nixon the Godfather of modern inflation was the last president to have a balanced budget because BILLS are total DEBT there is NO positive side of the ledger. How do you balance a debt? How do you pay debts with debt instruments?? You can never own land because you didn't PAY for it you use a BILL or evidence of debt that was called by a cabal of thieves to be legal tender. You cannot pay a debt with a debt. To own anything you must have BOTH right to possession AND Right to property. They could and can call dog shi- legal tender, problem is it was called "negotiable instruments" which you could refuse but once few did NOT the fraud was accepted. Legal tender is not Lawful Money.

Legal tender that is NOT 100% redemeable in silver coinage is UNETHICAL and THEFT.

ONLY YOU can demand a return to Honest Money, the 14th Article of Amendment stops those you elected from its repair. ONLY YOU can pull the trigger on Article 30 of the Federal Reserve Act.

Charles Brezina
antifederalist
antifed@comcast.net

While there are some interesting points on this thread, I agree its theft. I also think it's an act of desperation.

I agree. Something is wrong with it. I believe that a system that is based on violence, threats of violence and theft is morally rotten at the core. This is why we see so much cronyism, raising of debt ceilings and an overall lack of any fiscal responsibility. It's not their money--why should they care?

Exactly.

Suppose a central bank decided to target an inflation target of, say 4%, starting tens years from now, up from a 2% target today. Assuming that inflationary expectations do not become unhinged (This is why I have yet to advocate a higher inflation target, because we don't know) and an even bolder assumption that there is no relative price changes (i.e., relative do not change at a higher inflation target....certainly one of the costs of inflation) then would the public's balance sheet change in real terms, due to a redistribuitve element (i.e. theft)?

No.

Why?

Because the inflation would be expected, and this is certainly where the notion of credibility comes in. So, my wealth in real terms, and my income also, would not change as I, one of the millions of rational decisionmakers "pierce the veil" of nominal activity.

Again, I'm not saying that we should have a higher inflation target, partly because of the reasons above. We can only abstract to much. I actually prefer the status quo, at least until we get some more evidence.

However, if, say, the central bank just decided to juice up the economy with a onetime increase in the money supply, then output would increase somewhat, probably with a lower rate of unemployment, but, of course, the price level would increase unexpectedly at some point. Now that would most certainly be theft, at least as far as a tax on one's assets.

Of course, one could argue that the increased costs of (expected) inflation are theft, because of the opportunity costs, but if we're only talking about the explicit balance sheet, then inflation, as I have outlined it and how economists define it, is not theft.

Through all of this, the point is that inflation and price level changes are not the same.

--Pingry

Why do we need inflation?

"Because the inflation would be expected, and this is certainly where the notion of credibility comes in. So, my wealth in real terms, and my income also, would not change as I, one of the millions of rational decisionmakers "pierce the veil" of nominal activity."

More "bad economics" from you? Aren't you omitting some deviling details? What about the nominally contrived aspects of our tax codes? What about government programs with COLAs? Aren't there regional differences that are not adjusted for in the federal government's COLAs; aren't these sources of distortion. I could go on, but I think you are smart enough to get it, aren't you?

It's just another way of building the intuition for the inflation fallacy.


--Pingry

Okay, so, let's go over this one more time:

Inflation does not reduce debt burdens or destroy wealth. It is an unexpected increase in the price level which reduces real debt burdens. And these are two different things which I have pointed out many times on this page.

So, about the only redeeming quality of the gold standard is that it leads to longrun price stability, over the course of many, many years, which, interestingly enough, can be just as easily achieved by an explicit form of inflation targeting.

Now, with that said, the gold bugs have a serious problem. You see, having a gold standard is highly unstable in the short-run, and leads to unexpected changes in the price level, which in turn, redistributes wealth, and creates excessive variability in the business cycle.

What do you think would have happened back in September 2008 when the demand for money exploded and velocity dropped off a cliff? Could the gold standard have coped with that? No way, nominal interest rates would have shot up (and, of course, real interest rates!) Then, as a debt deflation set in from massive output contractions and an unexpected decline in the price level, well, real interest rates would continue to shoot up some more.

Do you think that gold could deal with a financial crisis? After all, we know that gold was a major culprit in the Great Depression. Do you think the stabilizing mechanisms would push the economy back to NAIRU fast enough? Do you think that wages and prices are flexible, like some of the policy entrepreneurs at the Ludwig Von Mises Institute?

Friedman and the monetarists were wrong about the stability of the demand for money and velocity. Just ask developing countries which tried his prescription, only to abandon it in favor of....you got it, inflation targeting.

--Pingry

Inflation does not...wealth

Did somebody say that?

I'll agree with you on that.

It is an unexpected increase in the price level which reduces real debt burdens.

Since we're nit picking: this is not true if there is a proportionate decline in productivity. Pingry, your macro is wrong, yet again!

Writing about economics is hard, because there are so many variables that we could mention but don't. I think a good rule is to be a generous reader. i.e. assume that any apparent oversight is actually a compromise for brevity, or at least address the issue with some grace.

I would refer to Milton Friedman later in life, who ended up favoring monetary rule in the Fed. Such a rule, especially if it were a monetary freeze rather than just the Taylor Rule, would have the positive effect of the gold standard (long-run stability) without the short-run problems (no side market for printed money).

You also really do need to stop referring to debated theories as "right" or "wrong." Very little in the world of economics (as in any academic field) is decided and unquestioned. You've been a little too black-and-white for most people's liking, and I think it turns readers off.

Yes, and with a proper explicit form of inflation targeting there are rules. Indeed, one of the great lessons of the rational expectations revolution is that central banks should pursue rules instead of discretion.

These days, the Fed has been very rule bound, with just enough discretion to conduct policy in a way that prevent the absolute worst of the financial crisis from destroying us.

--Pingry

"These days, the Fed has been very rule bound, with just enough discretion to conduct policy in a way that prevent the absolute worst of the financial crisis from destroying us."

It would be more accurate to say that these days the Fed has had enough discretion to cause the financial crisis through excessively low interest rates (2001-2004) and to extend crisis by trying to re-inflate the housing bubble and related excessive bowering.

I am no economist carrying around a nice degree so I have to ask, why would there be unexpected increases in prices?

"It is an unexpected increase in the price level which reduces real debt burdens."

You mean that business owners, managers, etl al., just walk in one random day and for no reason just up the prices for their goods or services catching the world by surprise.

If nothing else has changed in their world, except inflation, why would they do that? Seems counter-intuitive to think they would do such an off-putting thing when all else remains in equilibrium. Raising prices is never a good thing in customer retention and not to be done unless absolutely necessary, at least in my business world that is. Can I envision business people who act counter to their own best interests in a random and unexpected way. No.

Maybe I am missing this, are you saying that that random unexpected action by business people is what causes inflation?

I am a street guy but I must have been on a different street when that bit of wisdom passed by.

It could be from nonmonetary forces, such as an persistent change in oil or food, which the central bank does not control. Technically, headline inflation declines toward core inflation more than core inflation increases toward headline inflation. So, a shock to the aggregate supply curve could do it....and it has, like the 1970's.

Also, an unexpected change in the price level could occur if a country were to fix it's nominal exchange rate at the wrong level (Another thing which the gold bugs need to explain!).

Or, it could be a exogenous change in the aggregate demand curve, like a one shot increase in the money supply.

Robert Lucas has done some great work with this, the so-called "Lucas Critique," so check him out.

The point is, monetary policy can do little to keep unexpected changes in the price level in check, and shouldn't for excessive output would result. But it can keep both core inflation and inflationary expectations in check, which allows economic actors to "pierce the veil" as the classical economists call it. This is an important tenet of inflation targeting, which stresses a medium-term numerical target for inflation (among other strategies).

Indeed, despite the protests from the monetarists, we know that the demand for money is more unstable than so-called entrepreneurial animal spirits, and as such, we should expect a while change in the price level if their is an exogenous change in the demand for money. This is one reason why most central banks have target interest rates employing a channel-corridor system instead of reserve aggregates. In fact, the channel-corridor system is a safeguard against targeting reserves as it gives much better control over the overnight, nominal interest rate.

And so, we should come to expect that if changes in the public's demand for money are not met with changes in the supply, (which cannot be done under a gold standard) then the price level will change unexpectedly. In effect, the central bank gives the people what they want in the shortrun, and can change the position as the situation dictates, with the long-run effect that the loanable funds model takes over with a Fisher Effect built in.

Anyhow, inflation is a sustained process while unexpected changes in the price level are not. When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was talking about growth in the money supply which leads to a sustained rate of change in the price level.

--Pingry

Not to be nasty, but it sounds like you're making it up on the fly.

"It could be from nonmonetary forces, such as an persistent change in oil or food, which the central bank does not control."

If the monetary supply is stable, why would a "persistent change in oil or food" (I assume you meant prices) happen? Something somewhere has to upset the equilibrium to cause that, and since it is unlikely that people in commerce are deliberately going to upset a profitable apple cart by randomly and arbitrarily raising prices just because they think the can (competition kinda puts a damper on that, sans collusion), your explanation leaves me skeptical.

Ummm...what?

You are aware that the world is full of exogenous events, right? That our lives are dominated by randomness far more than we know, right?

--Pingry

Pingry said:
"You are aware that the world is full of exogenous events, right? That our lives are dominated by randomness far more than we know, right?"

Exactly. So why do you think you can centrally plan for these events?

But Pingry is so much smarter than any Austrians, you included. So are the central planners. Just because you don't think you can plan for these events doesn't mean that people who are smarter than you can't plan for them. By saying you can't plan for these events you're simply advertising your own inadequacy and stupidity. Remember that smart people like Pingry all think alike, and anyone who thinks differently is mentally deficient. Get it?

/sarcasm

Perhaps it is because he is highly intelligent, but ignorant of Hayek's insights. It is not uncommon for a highly intelligent person to miss the point that even if his mind were the best human mind on the planet it would be insufficient to increase the wealth of society by centrally planning even the simplest of things, say deciding what everyone will have for dinner. It is what Hayek call the "fatal conceit".
No single mind can know better than the billions of minds across the globe deciding for themselves what to eat for dinner (or in some cases, of course, deciding not to eat dinner) because the information about particular places, times, personal preferences, customs, and other circumstances is literally impossible for the single mind to even begin to grasp.

what sort of disingenous idea is this inflation targetting.whythef do you believe like gospel that the fed has the knowledge which the markets dont. it takes not only arrogance but narrowed vision to beleive in central planning. if central planning in money were so great an idea,why not extend it to everything else.

Inflation targeting is not central planning. On the contrary, monetary policy, as I said before, is a game of expectations management.

And a proper inflation targeting regime is all about credibly keeping the public's expectations of inflation low and stable.

Inflation targeting is all about providing a stable macroeconomic environment so that the private sector can be concerned about creating wealth, and not about the store of value function of money.

There is a tremendous literature about monetary policy and inflation targeting. I'd suggest that you check it out. But a warning to Austrians: It's very mathematical.

On a side note, a good way to learn more about inflation targeting would be for Russ to have one of its proponents give an interview on EconTalk.

I'd like for nothing more than to have Frederic Mishkin on EconTalk, so ask Russ to interview him and you'll see that inflation targeting is not central planning or anything like that.

--Pingry

But Pingry...if inflation targeting requires a fiat currency, and as such the government forces us to use it (because all other currencies are illegal), wouldn't that still fall under central planning? It takes a central authority to print up money, right?

From Wikipedia:
"Inflation targeting is an economic policy in which a central bank estimates and makes public a projected, or 'target', inflation rate and then attempts to steer actual inflation towards the target through the use of interest rate changes and other monetary tools."

http://en.wikipedia.org/wiki/Inflation_targeting

Keywords: "central" "steer" "interest rate changes"

I'm sorry Pingry I know you have lots of economic education, but I keep reading your explanations, and they don't make a lot of sense to me. Admittedly I don't have an economic degree. However, I do know about Occam's Razon: all things being equal, the simplest solution usually applies.

Central bank, fiat currency = a need for massive central control. Gold standard, no central bank, leave economy alone to do what it will do seems a lot simpler. I don't think people are smart enough to manage something as complex as economic tides, any more than they are able to predict the weather.

All I know is that when Nixon finally killed the gold standard we had massive inflation. All I know is that since the early twentieth century the dollar has something like 95% of its value. That just seems wrong to me, even with fancy mathematics and economics buzzwords.

With all due respect, I remain unconvinced.

Er, uh, Occam's Razor. :-)

Inflation is theft when it is deliberately used as fiscal policy by a debt-laden government that wants to screw its creditors. Inflation is theft when it is deliberately created by a government to gain power or popularity among debtors, be they corporations or individuals. Inflation is illegal financial punishment when it is deliberately created by a government to harm lendors and credit-holders.

Daniel Kuehn's claim that inflation is not theft is disingenuous. His explanation assumes inflation that just happens. The original WSJ article and Dr. Boudreaux's post are about inflation deliberately caused by our national government.

Your post made me go back and read Disingenuous Kuehn's lead-off post.

Of course it is disingenuous, he can't help it, it is what he does, who he is.

But beyond that, please tell me that you can read this and make sense of it:
"Nobody takes on debt denominated in dollars with an expectation that they have a right to repayment in dollars with a constant real value. If they wanted such a debt they could have written it into the contract,"

HUH?

If I take on debt, I am not expecting to be repaid I am expecting to have to repay.

If I loan money at a rate of exchange, or worth, of course I expect to be paid back in money at that same rate of exchange or worth. A lender would be stupid to loan money thinking he was going to be shafted. It may happen he is shafted anyway by government forces beyond his control, but I can't think of a lender going into that arrangement anticipating being screwed and accepting it.

Now if I borrow at one rate of exchange and find out later I can repay in coin of lesser value thereby cheating, stealing, from my lender.....in DK's concept.....oh what a sweetheart deal.

If you so concerned that the poor lender get his money back in inflated dollars thus the borrower got a free ride thanks to inflation then what does it mean when there's deflation and the borrower has to pay off the debt with increasingly expensive dollars? The lender is getting paid more in real terms and is getting the free ride.

deflation is bad for the borrower,especially if he has borrowed to binge on housing or a vacation to florida.a borrower needs to invest the loan for an activity that atleast compensates for the general increase in productivity. if you are stuck with paying off a debt taken in the 1980s for a 386 PC,well, bummer.maybe you thought PCs wouldnt get better ever.

Was such theft possible when our currency was backed up by more than simply the good faith of the Federal Reserve?

If you do not trust the central bank to keep inflation low and stable, as it has been for the past 30 years or so, then why should you trust it to remain on the gold standard for the next 30 years or longer?

After all, governments have cheated on the gold standard in the past.

--Pingry

It has been fairly stable. How is "low" defined?

duh, you just made the case for anarcho capitalists dawg!

Why not have competing currencies then?

The Fed was certainly able to mess around with the "gold standard". I would say the problem is the government's involvement, not the medium of exchange, be it gold or faith/paper.

Don is correct. Inflation is indeed theft.

No one (as far as I know) thinks that it would be morally proper for a private individual to make copies of paper money -- even if they are perfect copies -- and use those copies to compete with other money-holders for the purchase of goods and services. Such an individual is simply acquiring goods and services by reducing the value of everyone else’s money -- he is acquiring value by draining value from others.

Money-holders don’t have a right to a stable value for their money, for many factors can affect prices. But they definitely have a right to be free from the value-draining effects of a counterfeiter who creates a “purchasing power“ for himself by reducing their purchasing power. The counterfeiter’s action is definitely a form of theft.

Why on earth, then, would anyone think that government has the right to do such a thing?

The fact that government has the power to create money in this fashion -- and the fact that everyone knows the government will pursue a long-term policy of inflating the currency thereby reducing its value -- does not change the moral principle involved. The power to rob does not create the right to rob -- and announcing the robbery in advance does not justify it either.

"No one (as far as I know) thinks that it would be morally proper for a private individual to make copies of paper money -- even if they are perfect copies -- and use those copies to compete with other money-holders for the purchase of goods and services. Such an individual is simply acquiring goods and services by reducing the value of everyone else’s money -- he is acquiring value by draining value from others. "

Why would you make a statement like that? If people voluntarily choose to trade in private fiat money, what's the moral problem? If people vountarily choose to trade in public fiat money, what's the problem? Nobody trades in dollars under the impression that they have a right to a constantly valued dollar. Maybe they have an EXPECTATION of relatively constant valuation, but not a right. And certainly those expectations are hugely important for interest rates and inflation dynamics. But it doesn't constitute a property right.

Why would you make a statement like that? If people vountarily choose to trade in public fiat money, what's the problem? . . .Maybe they have an EXPECTATION of relatively constant valuation, but not a right. And certainly those expectations are hugely important for interest rates and inflation dynamics. But it doesn't constitute a property right.

The right to property is the right to its exclusive use and disposal. When government inflates the currency, it is effectively disposing of a portion of my money, without my permission -- just as surely as if they’d seized it and burned it -- and that is indeed a violation of my property rights.

I agree that there is no right to a “relatively constant valuation”. The value of one‘s money should be determined solely by what other individuals are freely willing to trade for it, with neither party to the trade having the power to force terms on the other -- and this can definitely result in the value of one’s money changing over time. But it does not follow from this that government therefore has a right to unilaterally decrease the value of my money by transferring a portion of the value out of my pocket and into its pocket.

Note that when a private trading partner chooses to demand more of my money in exchange for whatever he’s offering, that, too, can have the effect of reducing the value of my money -- but only if I choose to accept the trading partner‘s new price and proceed to deal with him. If I choose not to deal with him, he has no power to acquire a portion of the value of my money -- against my will -- the way that government can when it prints up money for its own use.

Nor do I think that the claim that my use of public fiat money is “voluntary” gives government the right to effectively dispose of my money it as it sees fit.

Saying that my use of it is “voluntary” is like saying my use of taxpayer-funded roads is “voluntary” because, after all, I could seek out and use only toll roads. Yes, sure, I could refuse to accept employment unless I am paid in gold or choose only to sell my businesses’ products to those who are willing to pay in gold, and then I could seek to only shop where merchants are set-up to accept gold in payment -- impoverishment would be the likely result of attempting to do that. As a practical matter, if you wish to live as anything other than a self-sufficient survivalist in the wilderness, you are going to have to trade in public fiat money just as surely as you are going to have to use taxpayer-funded roads.

So the “voluntary” argument carries no weight with me.

I can see no justification for the notion that government should have the power to reduce the value of what I've earned by simply printing up what it has not earned.

Check out the fate of the LibertyDollar.com. If you still believe that we have a choice of currencies in this country, ask Bernhard Von Nothaus what he thinks about it. Use of the dollar as currency is decidedly compulsory. And that is how the Fed pulls off its notorious scheme.

Micheal, I have been going back and forth with Daniel on this issue...you said it better than I could have and you nailed it right to the wall. Well said!

Thank you for the kind words, dooglio.

And thank you for the link to "LibertyDollar" -- but note that it should be "LibertyDollar.org" instead of ".com" -- at least, that is what my browser is telling me.

The charts provided by Von Nothaus are truly alarming, are they not?

And the government’s demand that he remove content from his web site as a condition of his "Appearance Bond" ?!?! Christ, these bastards are stuffing the Constitution down our throats as a means of silencing dissent.

And where is our "free press" to protest this outrage? Where are the "liberal journalists" sworn to protect liberties such as the right to free speech? I'll tell you where they are: they are too busy licking the master's boot -- and too idiotically self-absorbed to realize what "useful idiots" they've become for the wannabe totalitarians our power-lusting Looter-in-Chief and his allies in Congress have assembled.

Meanwhile, these looters are eating us alive by inflating away the value of our money -- even as apologists like DK try to convince us they have the right to do so. And not content with the current level of looting, these bastards are relentlessly scheming to increase their power to bleed us further. "Healthcare Reform" is only the latest such thinly-disguised attempt.

On our side, we have only one ally -- but it is a powerful ally: namely, the truth. We know there is no right to rob another man -- there is no right to pick his pocket or “eat out his substance” as our founding fathers put it -- no matter how cleverly one conceals the means by which one does it. And it looks like the majority of the American people know it as well.

And you're committing the inflation fallacy too!

--Pingry

I'm sorry, Pingry, but I am not impressed -- or convinced -- by exclamation marks.

If you think there is a justification for government reducing the value of everyone's earnings and savings by counterfeiting money, please explain that justification. Please explain why some (those who receive the new money printed by government) have the right to profit by means of reducing the ability of others to acquire values via the money THEY have earned.

Because lots of people expect government to provide them with lots of benefits.

This is the problem of collectivism.

Freebies!

No one (as far as I know) thinks that it would be morally proper for a private individual to make copies of paper money -- even if they are perfect copies -- and use those copies to compete with other money-holders for the purchase of goods and services. - Michael Smith

Well now you know better, because I have no particular moral compunction about it. I have not studied the history of money in great depth, but my impression is that anti-counterfeiting laws were used by states in the place of producing good money. In late 18th Century England, private coiners were not protected by anti-counterfeiting laws, and yet fakes were rare because the coins were of such high quality that counterfeiting was unprofitable. In contrast, the Royal Mint hid behind anti-counterfeiting laws to produce far inferiors products--and they were still counterfeited more than their private equivalents. One of the qualities of good money is that it cannot be counterfeited without creating something of actual worth, in which case "counterfeiting" is actually, in a sense, production. Perhaps all potential monies should be subject to the test of counterfeiting, since in that way we may better distinguish between good and bad money. Employing the heavy hand of the state to enforce anti-counterfeiting laws would impoverish that market discovery process.

The fact that you have no "particular moral compunction about it" does not establish your right -- or the government's right -- to counterfeit money and thereby acquire -- against their will and without their permission -- a portion of the value that the money of others would otherwise purchase.

Many criminals -- if not most -- have no particular "moral compunction" about their acts. That you have no "moral compunctions" about counterfeiting proves nothing -- except your own immorality.

Nor does any particular history of how various laws have been "used" in the past justify how they are used -- or NOT used -- today. So that is completely irrelevant.

You've offered no argument that justifies the notion that government has the right to create fiat money that reduces the value of everyone else's money. Your argument -- at least what you've offered so far -- amounts to the claim that it is incumbent on the propery owner to make it difficult or impossible to steal his property -- and that if he fails to do so, then anything goes.

However, if you wish to press the claim that government has the right to counterfeit -- the right to wage a long-term policy of undermining the value of everyone's earnings and savings -- proceed to do so. I am confident that rational people will see why your argument is nothing but a claim that government has a right to steal from its citizens.

I do not think it is right for government to abuse its position as monopoliser of the money supply by debasing it; no such abuse would be possible in a free and competitive market for money. However, I do not consider such monetary debasement to be theft, even though it may be dastardly and destructive. For legal and moral purposes, monetary debasement is not a kind of theft, however wrong we may otherwise believe it. Is it like theft? Yes, but a useful distinction is lost when the term "theft" is used in this rhetorical way.

What "useful distinction" do you feel is lost?

Supposing that inflation is defined as an increase in the price level, then the reductio ad absurdum is to assume that the demand for dollars falls. Is Peter thieving from Paul because he ceases to value dollars as highly as he once did and demands more in exchange? That would be a peculiar position to hold.

Properties rights to an object do not include a right to its market value. A more appropriate line of argument would be to confront government monopolisation of the money supply, because it is only by suppressing competition that inflation can be abused.

"Properties rights to an object do not include a right to its market value. A more appropriate line of argument would be to confront government monopolisation of the money supply, because it is only by suppressing competition that inflation can be abused."

Precisely. I think the monopolization issue probably wouldn't change things considerably, though, but it would be interesting to look into. If the government is only accepting payment in taxes in a certain currency that would go a long way towards establishing the government's fiat currency as a dominant currency. You're right, though, that even in this case a lack of monopoly would prevent confiscatory inflation. In the U.S., though, we generally haven't had to deal with confiscatory inflation so it seems like a non-issue. Regardless, money supply monopolization is certainly the only legitimate way to make an ethical case here - not the fact that the currency is fiat.

I've been thinking about these "reductio ad absurdum" arguments on economic issues recently, too. I don't like them and I think I figured out why: with reductio ad absurdum it's very easy to gloss over or minimize convex preferences - and glossing over convexity usually makes for very bad economic analysis.

Wait. I think I understand the flaw in your thinking. You are equating dollars to something like...a car. You buy a car and it begins to lose its value from natural wear and tear. Fresh produce will go bad after a while if not consumed. A computer system will not be as valuable in a year as it is today because newer and better units are produced. But there is no one taking that value from those items. In the example of my car, no one is benefiting as my car loses its value.

Not true with dollars or any other fiat currency. I can show that indeed someone is benefiting from the loss of value from my dollars. That's the theft part--someone getting something for nothing--at my expense. You can show that value is actually being stolen, not wearing away through natural use.

No, you're wrong. That's precisely why I said you should abstract away from wear and tear, to get away from that - which is an actual change in the product. Think about unchanged land. Land prices go up because demand for the use of land outstrips supply of land (since the supply of land is fixed this is always an easy one to think about). That's all deflation is - demand for currency outstrips the supply of currency. Inflation is the opposite issue (although I can't think of any product markets off the top fo my head where an inflation analogy applies). As demand for land outstrips the supply of land it's price will go up - but it's not theft if some oil tycoon in Dubai deliberately creates more land, thus lowering the value of your land. It's not theft for a Dutchman to reclaim more of the coastal plain, thus lowering the value of your land. That's all that's happening with inflation. I don't appeal to products that actually lose value. That's not the basis of my argument. That's why I specifically suggested abstracting away from wear and tear - I imagine cars would still lose value over time. But perhaps the car analogy was a bad one.

You have a strange definition of "stealing". Someone benefiting at someone else's expense? Since when is that stealing? It's stealing if someone takes something from you that you had a right to. You have a right to your dollars. You don't have a right to a certain market value for those dollars.

I still think you are not looking at it the right way. If I own a house, and more houses in the area get built, my house goes down in value. This is true, supply versus demand. However, the owners of the property who are building houses did so with their own capital, their own wealth. They (presumably) got the capital for the new construction from some other kind of work they did. In other words, someone had to work to produce that wealth. And I did not have any wealth taken from me in the process. I still have my property. I can see what happened to the value of my property, but I still have it and can still enjoy the use of it fully.

The government prints up money out of nowhere, nothing. No effort had to be expended to create new money--they are trying to create wealth out of nothing, but it does not work that way. As soon as the velocity of that new money picks up, it starts to lose value. Everyone loses wealth who holds dollars and the people who had access to the money first get the full value of the new money. This is what I am talking about. Someone is benefiting at another's expense without their permission or knowledge. That is what stealing is--when you are deprived of your property without your consent. It's a fraud. My wealth has disappeared--I no longer have full use of it.

Money is a store of wealth, nothing more. We could use gold and silver and we would have the same thing, except the government can't print gold or silver.

Yes - no example is perfect. But these issues that you raise are completely irrelevant to the main point.

Maybe this example will get you to understand the real point: consider a secondary public offering of stock. Is a secondary public offering "theft" because it dilutes the wealth of previous shareholders? Of course not. That claim is laughable. And in this case, companies don't work to issue more stock. The only production to speak of are the transaction costs of actually making the public offering (and even the central bank has those sorts of transaction costs!). Is it theft? Of course not.

Does it have distributional consequences? Will it make some people angry? Sure. That's why they demand things like stock options. But you know what - as a currency holder you do that too. You demand an inflation premium on top of the real interest rate whenever you lend your money to a bank or anywhere else.

With a secondary public offering, there is no malfeasance. Everything is on the up and up and you can see what is happening. You can't with currency inflation. The central bank is engaged in fraud. That's where the crime is. Call it whatever you like, I feel ripped off because my dollars have lost value, and they didn't need to.

I do agree that this would not be a problem if the Fed did not enjoy an monopoly on money. Then they couldn't force us to participate in their scheme where they transfer wealth from the poor and middle class to the rich.

Well, I have to say, I do agree with one thing you are saying: it's the fact that the government prevents us from choosing alternative currencies that causes the problem.

Look at it this way...the people that have first dibs on the new money that the Fed prints get the full value of that money. That means they get to pay off debt with nothing, since the currency was printed out of nowhere. As that money circulates, prices start going up.

Someone is getting something for nothing, and they are taking value from people who saved their money. It would be like if someone had a ray and could from a great distance slowly transmute your gold into lead and then steal the extra electrons and convert their lead into gold right under your nose.

I still think it's theft because someone is getting value they never earned at someone else's expense.

Why should be supposing that inflation is defined as an increase in the price level?

Because it's not!

An increase in the price level, is, well, an increase in the price level.

There's a reason why they're two different things.

Suppose an apple is an orange.....

Suppose we try to subtract two different fractions with different denominators without the aid of a calculator....

Apples are compared to apples, and oranges to oranges. Likewise, fractions should have the same denominator when added or subtracted without a calculator.

And so we cannot equate the price level with the rate of inflation

--Pingry

Pingry,

The term "inflation" is traditionally defined as a rise in the general level of prices. It's not a definition that I particularly like, because talking about inflation is unimformative. Whether a rise in the general level of prices is good or bad thing depends on independent factors--one being expectations. Personally, I would prefer that "inflation" be defined as an increase in the money supply relative to money demand, because this isolates a change in the price level driven by greater productivity (and other innocuous factors) as opposed to a change in the demand for money. Since, I believe, it is only the latter kind of inflation which causes problems, I would prefer if the term were used exclusively in that case. However, this is but a pipe dream--my preference is not what the word "inflation" is conventionally used to mean and it never will be.

For many years, dictionaries defined inflation as an expansion of the money supply, especially a rapid and sustained increase that results in price increases.

I was very impressed with your earlier defense about doing proper economics, but you've lost me on this analogy; can you provide more details?

As I see it, the government needs to spend a certain amount of money on goods and services, but it cannot afford it, because it has blown through collected revenue, and it has also gone through the politically acceptable amount of deficit spending for the year, and it still needs to buy some more goods and services. So the government runs the press a little more, and spends those fresh dollars at the market. So in the next iteration, the merchant offers his goods at a slightly higher price, because he knows the government will pay anyway, or because another buyer offered him more for his limited wares. The government prints more, buys more, and the prices go up more.

This, writ very small, is how I see a connection between inflation and rising price levels. Can you redraw my admittedly simplistic picture?

Prices may increase for a variety of reasons, such as an increased cost of transport.

Inflation can produce an upward trend in prices, but is not properly defined as "increasing prices".

See my post at the bottom where I try to make the distinction between inflation (a sustained rate of growth in the price level) and an unexpected change in the price level (an unsustained, and unanticipated effect)

They're different, and the distinction is deep, but vitally important, for if a central bank were to react to shortrun changes in the price level, then this in itself would unhinge inflationary expectations, leading to a further rise in inflation expectations as the upward cycle increases and price level changes redistribute wealth.

I tried to discuss these effects, among others, in the decomposition of interest rates. But also, while a technical issue, a central bank has many nominal anchors it could target, two of which are the price level and the rate of inflation. But, of course, because these are two different things (mutually exclusive), the central bank cannot do both simultaneously.

Now, keep in mind that I never said that inflation was unimportant. On the contrary: Inflation has a list of costs which economists have outlines, such as: Money Illusion, Bracket Creep, Shoe Leather Costs, Menu Costs, Relative Resource Misallocation, etc.

I think the time series and cross sectional evidence shows that the best way to keep government from monetizing the debt is to have central bank independence. We could get into the specifics of instrument and policy independence, but the bottom line is that a central bank needs to be shielded from, but accountable to, the shortsighted whims of politicians (who also lack the expertise to conduct monetary policy) otherwise an inflationary bias gets imparted into policymaking.

This is why I am afraid of Ron Paul's audit the Fed bill. It's really nothing more than a takeover of the policymaking. Just the onerous restrictions on discount window lending alone could seriously cause problems, not least in a tough economy.

Monetary policy is a very much a game of expectations management. And if the political process can get a hold, then watch as inflationary expectations take off the moment Ron Paul gets his wish...all without absolutely no change in Fed behavior.

More tomorrow if I'm feeling saucy.

--Pingry

How independent do you suppose the FED is now from the political process?

Don, your macro is wrong, yet again. You write:

"Nevertheless, inflation does reduce debt burdens"

No, inflation does not reduce debt burdens. It is an unexpected increase in the price level which reduces real debt burdens. These are two distinct effects which can be seen in the decomposition of interest rate movements. How Keynesian of you to incorrectly think that these are the same thing. You, my friend, have just committed what real macroeconomists (i.e., not Austrian Business Cycle Theorists) call the inflation fallacy.

While there are both costs and benefits to selecting a higher inflation target, and recently much debate on this topic, getting the rate of inflation and price level movements mixed up is just bad economics.

--Pingry

I think that's implicit in his statement, Pingry. You can't send a treatise to the Wall Street Journal. I think the mechanism is understood.

Daniel, you have come a long way. I applaud the civility and general understanding you have applied to your posts as of late. Your frequent comments have no longer become immediate skim-overs to me. Thank you.

I'm not sure what has changed about my comments, which makes this feel like a back-handed compliment. I'll assume you didn't mean it that way and thank you. I'm not aware of anything different.

Are you just angry at Austrian economics? Libertarians? I'm not sure what this post is meant to accomplish.

This post is about doing proper economics. If it's okay for Don to call out people, then he should expect the same. After all, we're all fighting for the truth....but in Don's case, he got his macro wrong. And, as mentioned above, if one cannot realize that these are two different things, then you get bad policy. There's a reason why the rational expectations revolution was, well, a revolution.

I don't hate Libertarians. In fact, I had a good time working for a libertarian thinktank in the past. I'm certainly no American-style liberal or conservative, but on that note, I'm not an extreme Ayn Rand libertarian, like many of the Austrians who proffer up bad macro. Notice how I critique Austrian macro (ABCT). I think Austrians made important micro contributions regarding marginalism, but not all economics is micro, as they claim. And so I'm more of a Milton Friedman libertarian, but I also realize that Friedman, like many intellectual pioneers, was wrong about some things, including monetary theory.

I am, however, pretty intolerant of Austrian macro. It's way too simplistic (and just plain wrong) and is also a convenient theory for econ-wannabes to justify what they already believed. Could there be a more powerful combination than telling people what they want to hear in highly simplistic, albeit incorrect, bitesized morsels?

And so what's the result of this Austrian Macro/Treasury View/Liquidationism? Well, we get lunatics like Ron Paul (who I have praised for his nonmonetary stuff) and his ilk who advocate ending the Fed, only to replace it with the barbarous relic of the gold standard. Do you know how many people I have heard (including "scholars" at my old thinktank) who talk about the Fed holding interest rates "too-low-for-too-long" as if it were somehow a fact without offering any statistical evidence? It's getting a bit old. Even Don has done that, citing a Larry White paper which devoted a whopping page, half of which was a silly graph of a Taylor Rule versus the Fed Funds rate. So, they must be genuinely terrified of the Cartesian Plane (Austrians do reject math!) or there is not evidence. After all, if you're going to make a claim, then you should at least try to test it, and not pass it off as serious thinking on the unsuspecting public.

Damn, if we're going to do econ, then we should do it right. There's nothing wrong with being a little "l" libertarian and outlining the cases of market failure, or believing that Supply Side theory is bogus, or seeing the economy through a Dynamic Stochastic Equilibrium lens, or concluding that financial crises occur far too often, with overwhelming force, because finance can be very destabilizing in the shortrun.

You don't see Cowen, or Tabarrok or Caplan doing fringe economics, and yet they're pretty libertarian. Indeed, professor Caplan even wrote a smart essay entitled "Why I am not an Austrian Economist." Check it out.

So, my beef is that libertarians are playing loose with the facts, and getting fuzzy with the math, just like the liberals and conservatives they criticize.

You have to understand where I'm coming from when I read lunatics like John Tamny writing about "The Flipside of Failure" and Alan Reynolds "Stimulus Raised Unemployment," or, well, other articles of his in which he dissed people concerned about a housing bust, financial crisis and recession, all to have it blow up in his face (warning, many pro-market people on this list):

http://economicsofcontempt.blogspot.com/2008/07...

I mean, I remember a debate I had here a short time ago in which George Selgin denied that there is asymmetric information in financial markets, claiming that the literature in this area was wrong. I mean, you just can't make up this stuff.

So let's stop the worship of markets.

If you do bad econ, you'll get called out. I don't care who the hell you are.

--Pingry

Pingry, you may well "remember" a debate in which I denied that there was information asymmetry in financial markets. But then your memory is at fault. Of course there is some such "asymmetry." I never denied it. What I have denied is that it explains observed patterns of bank runs. And I'm in good company on that score (more names for you: Kaufman, Benston, Gorton, Calomiris, Wicker--are those non-fringe enough for you?).

Now if you'd like to actually _quote_ me concerning some "stuff that you can't make up," be my guest. Otherwise be prepared to be told that, as a matter of fact, you _are_ making it up!

You state above that: "Damn, if we're going to do econ, then we should do it right. There's nothing wrong with being a little "l" libertarian and outlining the cases of market failure, or believing that Supply Side theory is bogus, or seeing the economy through a Dynamic Stochastic Equilibrium lens, or concluding that financial crises occur far too often, with overwhelming force, because finance can be very destabilizing in the shortrun."

And you also say (earlier on): " if you're going to make a claim, then you should at least try to test it,"


The juxtaposition of your statements suggests confusion on your part, or to put it in your terms "bad economics." If by "doing it right" you mean testing, then for example "believing supply side theory is bogus" seems to be anything but "doing it right".

You also suggest "let's stop the worship of markets."

Yet you seem to want to be blind to the potential for demonization of markets when you extoll "outlining cases of market failure." Coase's paper on the lighthouse in economics is good economics because it pierced the outlines that some "great economists" had long drawn out of little more than thin air.

Neither worship nor demonization are "doing it right" in my view.

It might be worth remembering to remove the beam from your own eye before bothering with the speck in your neighbor's.

Why do you say that the gold standard is "barbaric?" What is wrong with a stable currency that can never be inflated? Do you support central management of the nation's currency? Would lifting the legal tender laws and opening up the market for currency competition be bad or good in your opinion?

Would lifting the legal tender laws and opening up the market for currency competition be bad or good in your opinion?

Which is what Ron Paul has specifically proposed.

Looonnngwinded...

When someone's comeback consists of "Looonnngwinded..." and nothing more, then that's how I know I'm winning, because I knew all along that I am right.

--Pingry

Actually, it's easy to understand why you would say that. I, admittedly, know very little about macro. I just thought it was interesting (humorous actually) that you gave such a longwinded response to a pretty straightforward question which was intended, no doubt, to provoke you.

Though my knowledge of macro is limited, I do know that there is by no means a consensus about what 'correct' macro economic theory is. Even 80 years after the depression there are still multiple explanation and much debate about what caused and prolonged it.

A longwinded response, such as yours, in noway defines quality.

Yes, of course, there is debate over issues in modern macro. Nobody would deny that.

But your point reminds me of methodology of hypothesis testing in statistics.

If one rejects the null hypothesis, then there is statistical proof that the alternative hypothesis is correct.

However, if one does not reject the null hypothesis, then one simply has failed to prove the alternative hypothesis. And the failure to prove the alternative hypothesis, however, does not mean that one has proven the null hypothesis.

Similarly, these days, it's not a case of failing to prove Austrian macro, in which case, one must continue the belief, although unproven, that Austrian macro is somehow an accurate depiction of how the economy works.

On the contrary, it's a matter of rejecting Austrian macro outright because it is not how the economy works. That is, one can reject something, but have lingering questions and arguments about other things. And so naturally, most macroeconomists think that Austrian macro is bogus, despite the fact that there are still unsolved issues in the profession.

And I have made this point here regarding the Fed's conduct of monetary policy after the dot-com bust and 9/11. From all of the evidence I have seen, the Fed's monetary policy is not to blame for the housing bubble and financial crisis. And those who parrot the "Too-low-for-too-long" line have yet to put forth anything serious to implicate the Fed. In effect, I believe that the Fed's monetary policy can be ruled out, while at the same time, we can squabble over the myriad of other potential factors.

--Pingry

From all of the evidence I have seen, the Fed's monetary policy is not to blame for the housing bubble and financial crisis.

It's not appropriate to blame the FED's monetary policy for the housing bubble and related financial crisis.

Multiple government policies expression through numerous regulations (in context) determined where the bust would occur.

The question is whether monetary policy had anything to do with the boom...given that economic growth is a desired and predicted effect of monetary stimulus.

Perhaps certain trajectories were inappropriately stimulated.

He comes here only to hurl such invectives at the hosts! Have you seen a positive comment from Pingry lately? Given his disdain for the hosts of the blog, one wonders what makes him come back with an alarming regularity.

I've never seen much civility from Pingry.
His tone always makes me want to skim over his posts.

Sandre,

You're the one who has called me names in the past after I make the penetrating argument. And how do I respond?

With the same penetrating argument which you fail to counter.

In fact, I don't even need to retype it! I just love the copy-n-paste function.

Now that's some serious spontaneous order for Don's prosperity pool!

--Pingry

Wow! You are impresses with your arguments, aren't you? I see no penetration. Show me the penetratio. Show me the name calling.

Pingry,

When reading Don's "Letters to the Editor," it is worth considering that his arguments must be short and to the point. While you are correct inflation does not reduce debt burdens by itself, it seems petty of you to practically accuse Don of professional malpractice given the format. Your "gotcha" comment makes you look small.

No, it's not petty at all! These two effects (and there are more) are extremely important components to the composition of interest rates. Indeed, there is a great deal of literature regarding the debate over the appropriate nominal anchor for a central bank to target, and, not surprisingly, two important nominal anchors are an inflation target and a price level target. Which do you prefer? Because you can't target both simultaneously. There's no free lunch here.....

I'd sure as hell say that the appropriate conduct of monetary policy is not "petty" if one cannot understand that there is a huge difference between the two.

--Pingry

pingry,

I didn't say anything about appropriate monetary policy. I said that you were being petty and I stand by it. In any case, I appose both inflation and price level targeting--my preference is for targeting nominal expenditure. However, I would much prefer not having a central bank at all, and leaving the money supply to the free market. The government's monetary monopoly is a constant threat to prosperity and freedom.

We just experienced Core CPI deflation for the first time since 1982. Please excuse me while I go sound the Hyperinflation Zimbabwe Alarms.

Inflation is a huge problem. The inflation you're talking about is *price* inflation. That is one small indication of inflation. The housing market is being inflated like never before by the federal government so prices remain relatively stable. Right now (as in any bust) there SHOULD be deflation. The fact that there is so little deflation in "core" prices shows that in fact, there is a very large amount of inflation going on.

And "Core CPI" is such a poor measurement. It's like saying average rain fall was only 40 inches this year instead of 50 the inches recorded because we don't count the rain that falls in April. You know the saying, "April showers bring May flowers." Why count the rain in a month that everyone expects it to rain?

Ridiculous.

ckohtz,

Welcoming deflation is like celebrating a swin flu epidemic. What should occur is a change in the composition of expenditure, while nominal expenditure should remain constant. Supposing that no significant change in the number of transactions accompanies the change in expenditure composition and relative prices, the price level ought to remain quite steady. The reason that nominal expenditure should remain constant is that saving is not achieved by merely collecting monochrome pictures of dead statesmen, but by investing resources to create goods for future consumption. In other words, consumption spending should be replaced by investment spending with no change to total expenditure.

Really? So the fact that you can buy a terabyte hard drive no larger then a book right now, compared to the 20 lb, 20Kb hard drive of 20 years ago - for the same price (or less) - is bad? You think that's like a swine flu epidemic? Someone, please give me the swine flu!

Personally, I like it when the price of things come down - especially if I was paying to much before due to artificial demand via speculation and malinvestment. When prices come down, I get to buy more stuff! My standard of living actually improves!

Wouldn't it be great if in 20 years, the money we save for retirement could buy more stuff? That's how it should be. We figure out better/easier ways to make stuff which allows us to make more for the same or lower costs, allowing the price to go down. Our lives improve. With inflation, everything is always more expensive because the currency we hold gets devalued. Our savings is worth less, our paychecks are worth less, and only those at the top of the food chain benefit because they pay for things with new money before the prices increase. That sounds like a *Spanish* flu epidemic to me.

On swine flu...
Between April and January, about 57 million Americans got the new flu - about the same as a severe flu season. Hospitalizations were about the same as a *typical* flu season and deaths went down - from around 36,000 people/year to about 12,000 deaths (10 months). More people got it, the same amount were hospitalized, and fewer people died. The number of people immunized was about the same.

http://www.npr.org/blogs/health/2010/02/flu_vac...

"Really? So the fact that you can buy a terabyte hard drive no larger then a book right now, compared to the 20 lb, 20Kb hard drive of 20 years ago - for the same price (or less) - is bad? You think that's like a swine flu epidemic? Someone, please give me the swine flu!"

Really? You can't tell the difference between supply and demand? Isn't this econ 101? It's nice to think that you live in a little bubble in a deflationary environment. I'm sure deflation is nice if you have 3,000,000 green pieces of paper just lying around doing nothing, but most people actually work for a living. It's nice to think that your wage will be worth more, but chances are that if your employer can only sell his inventory by slashing prices, then he's not going to be doing a lot of hiring. And he might be doing a little bit of firing too. Deflation does not increase the purchasing power of a wage of $0.

You are assuming that once you're unemployed, you'll always be unemployed.

By inflating the money supply and not allowing prices and wages to drop, we keep unemployment high. People have already lost their jobs, even with the massive inflation by the government (bailouts, housing credits, cash for clunkers, TARP, etc, etc). But still nobody is hiring. Inflation, job bills and "shovel ready" programs didn't work in the Great Depression, and they won't work now. They just confuses the situation, creating more uncertainty. Businesses are very reluctant to hire in uncertain times.

I'd rather have a few difficult years with deflation and transitional unemployment while the economy corrects itself, instead of the prolonged and systemic unemployment we have now. They used to say the "natural rate" of unemployment was around 5%. I've heard pundits/experts talk about how they may raise it to around 7%. This is a direct result of Keynesian economics. That, and a massive amount of debt. You can have it. I'll take the free market any day.

I apologise--my comment was unclear. By "deflation" I had in mind a shortage of money relative to demand, rather than the consequence of greater productivity. Both are likely to cause a fall in the price level. However, while I invite a lower price level driven by greater productivity, a lower price level caused by a shortage of money relative to demand is like a rot. In the recent recession, the falling price level was a result of the latter, not the product of advances in production.

I'd still rather have deflation. It means my savings and my pay check can purchase more. It also means that the market is correcting itself. If prices are too high and there isn't enough money to buy things, then a true correction requires prices to drop. It means there was too much credit (which there obviously was before this recession) and everything was over priced (housing this time, dot.com companies last time, etc, etc). Labor gets over priced too. Will people lose their jobs? Yes. That's part of the correction. Those that lose their job will be hired at lower wages. This will also put downward pressure on my wage which might decrease as well - but it doesn't matter because I can purchase more with less. The problem comes when people refuse to let this happen. Minimum wage laws make it so people can't get hired back at lower wages. Unions and laws that "protect" workers do the same. Bailouts create moral hazard and prevent the liquidation of missallocated resources that could be used better somewhere else. It all keep wages and prices from dropping and keeps people from being hired. It's why unemployment goes up and stays up. Let the market work and you let people work.

Trying to manipulate the system simply re-inflates bubbles (see the current housing market as an example) and fixes nothing. It just kicks the can down the road. The next recession will be that much worse. How many great depressions were there before the Great Depression? Zero. Because the government got out of the way and let markets correct themselves. Bubbles are created by inflation and the U.S. is inflating like never before. Busts always follow bubbles. Always. Give me deflation any day.

Moreover, let me add that in a free market for money and banking, private money issuers would seek to prevent this "bad" deflation from occuring, even though they may tolerate the "good" deflation driven by increases in productivity.

Of course they would. They are the ones who extended too much credit. They're about to go out of business. Deflation will kill them (as it should).

The kind of deflation that occurs when there is an excess demand for money does not preserve the value of your savings. In the time it takes for prices, commitments and expectations to adjust, a significant proportion of the resources that people are saving are being neglected, i.e. left to depreciate. Since deflation caused by an excess demand for money prevents saved resources from being redeployed to produce the future goods and services that you wish to purchase, the value of your future dollars is eroded and your future made less prosperous. It is very important to understand the difference between these two kinds of deflation. My major criticism of the Austrian School of Economics is that most self-described Austrians do not recognise this distinction--though Mises and Hayek certainly did.

My major criticism of the Austrian School of Economics is that most self-described Austrians do not recognize this distinction

I'm quite aware of it. That's why there should be no credit monopoly.

The problem now is that demand has dropped for some goods and services, not because of a reduction in money supply, but because worried consumers have decided to shift to savings. The FED is trying to counter price drops with inflationary measures.

I see no reason for people to increase consumption at this time, do you?

Spending can be directed toward consumption, but it doesn't need to be. The composition of consumption and investment spending should be left to the market, but consumers' savings will be going to waste without the monetary disequilibrium being corrected.

but consumers' savings will be going to waste without the monetary disequilibrium being corrected.

How so?

I can guarantee that Mises and Hayek would not want the kind of inflation and big government intervention that is going on right now. As far as a prosperous future, I guess we'll have to wait and see how it turns out.

"With inflation, everything is always more expensive..."

I shouldn't say "always" as sometimes deflation happens at a faster rate then price inflation. I should have said "always more expensive then it should be."

Don, would it really be America if we didn't try to swindle our way out of the mess we created? All you hear about these days is the greedy thieves from Wall Street, but how is this any better? It's worse, because it's legally justified...

This argument has always bothered me a great deal. Theft implies property rights. Nobody takes on debt denominated in dollars with an expectation that they have a right to repayment in dollars with a constant real value. If they wanted such a debt they could have written it into the contract, or borrowed in something other than dollars. But nobody has property rights to a stably valued dollar. No property rights means no theft. You may want to argue that fiat currency is unwise or imprudent, but I don't think you can argue that it is unethical. While I think the taxes = theft argument is also problematic, it is on considerably firmer ground than inflation = theft.

If this were 1933 or 1971 perhaps you'd have a better case - at those points contracts were broken and property rights were violated. But nobody has any legitimate claim to debt repayment in constant dollars now. Am I missing something? What property rights do you think are violated? Perhaps a case can be made on the basis of legal tender laws too - but again, this would be an ethical argument against the restrictions of legal tender laws, not an argument that inflation is theft. Inflation is a risk for any medium of exchange, regardless of the legal tender laws in place. But if you're going to criticize anything I think it would have to be legal tender laws.

Well "theft" might not be the correct legal term here; "fraud" might be better because government officials (who are in the driver seat steering the value of the currency and inflation) speak in terms of "supporting a strong dollar" but act in the opposite way.

"Strong dollar" is foreign exchange terminology.

Inflation is deceptive. It's a hidden tax when government monetizes its debt.

And, of course, it hurts the poor most of all.

Nobody takes on debt denominated in dollars with an expectation that they have a right to repayment in dollars with a constant real value.

But they do have an expectation that they will be better off after repayment than before they granted the credit, otherwise, why make loans?

True, but that's why inflation premia are built into nominal interest rates. Besides, expectations still don't amount to rights. I expect to be treated civily on Cafe Hayek. I have no right to that. Thankfully, in the majority of cases my expectations are met. When they aren't I'm worse off, but my rights aren't violated.

I tend to go with martin here, "theft" I a legal term and government determines what constitutes theft.

Government acquires resources by various means, all based in its sanctioned use of extortion.

Obviously, it's not "theft", because the men defining "property" (and thus "theft") these days say it's not, period, end of story. There is no "natural" or "divine" propriety beyond the forcible claims that armed men defend. In my way of thinking, the only ethical measure of one standard of propriety over another is utilitarian. Even contracts "broken" by statute or judicial decree are not properly "theft". The contractors have nothing with which to contract without prior decrees to which various men objected in the first instance.

Semantics aside, the utility of limited inflation is debatable. The cost of less inflation is more loss through defaults. The value of a "dollar" can be fixed relative to gold or some other durable commodity in a free banking system, for example, but banknotes in your pocket and credits in your bank account don't therefore have a fixed value, because the fixed value of a "dollar" requires bankers to realize losses that they need not realize in an inflationary monetary system.

Depositors in some banks would lose less than depositors in other banks, and depositors in some banks would lose nothing on balance, but no persistent equilibrium would ever occur in which no one creditor ever loses anything. We have the system we have now because creditors demand, and receive, protection from the state. The FDIC doesn't bail out debtors.

So depositors in failed banks would accuse their bankers of "theft", and creditors generally would accuse defaulting debtors of "theft", and we'd have debtors prisons, and states would tax us to pay for these prisons, since the creditors and debtors themselves obviously wouldn't pay for them. A little inflation, creating the illusion of greater nominal "security", might be preferable to this outcome.

The term 'fraud' might fit better than 'theft.' The key here is an intention of evasion. If the inflation is intentional and done to avoid paying the full value due the lender, even if it isn't technically criminal, it is certainly unethical.

I could definitely work more along these lines of argument. I'm certainly not advocating inflating away the debt. But recognizing a silver lining to inflation - particularly under depressionary conditions - doesn't strike me as the kind of de facto default that you're refering to.

Particularly when those loans were made with the expectation of some degree of inflation in the first place! If anything, I would expect that the government's real debt obligations are higher now than was expected when the borrowing occured, not lower. Both the government and their creditors probably didn't expect much of the low inflation and brief dips into deflation that we've experienced, so it is the creditors who have come out on top ex post. Given that, the simple observation that inflation could relieve the real debt burden doesn't bother me that much.

Of course the devil is in the details and lenders do forcast inflation when they calculate the risk of a loan. Damages, if awarded during some imagined legal action, would have to take that into consideration.

However, the actual crime in this thought experiment would have to hinge on intent, which would be difficult to prove. At some point it becomes Machiavellian as we are obviously talking about something only a State could do.

"Vandalism" might be a better term than "fraud" or "theft".

They've harmed the value of your property, but they haven't taken it from you.

Daniel, if the newly printed money were provided by the market, i.e. by a free banking system that would react to shifts in demand for money, I would be fine if it sometimes caused inflation. Then it would not be theft. Or otherwise you would have had to call a thief anyone who contributed to the supply of a certain good which lowered the price of such good.

It is different when a central bank comes into play. Its actions are not controlled by the demand for money. And what it does is arbitrarily redistribute money from creditors to debtors and sometimes vice versa.

I'm confused - so the argument is that the mere fact of a non-market mechanism impacts it's ethical status? Why?

Central banking is central planning. People at the Fed centrally plan who is going to be richer and poorer.

Imagine that I arbitrarily decided today that Daniel Kuehn's wealth should be reduced today by $1000. That's exactly what the Fed is doing albeit on a larger scale. Wouldn't that be unethical?

I suppose it depends on how you decide to reduce my wealth. If you do it by taking $1000 out of my bank account, that would be theft. If you did it by flooding the market with an asset that I hold, making my holdings of that asset worth $1000 less, then it's not theft (although I may be mad at you, you wouldn't be criminally or ethically guilty of anything).

Would you call a secondary public offering of stock theft? Sure it can frustrate some people, but would any of them be justified in calling it theft? Of course not. And for compensation, shareholders often want or expect stock options - just like holders of currency expect to earn an inflation premium on top of the real interest rate. But nobody would ever think to call it "theft". How is that any different from an increase in the money supply?

Yes, I thought it over and came to a conclusion that theft is a wrong label here.

The problem is real problem is monopoly, not theft.

I would agree - in my first post I said that if you're going to direct your criticism anywhere it should be at legal tender laws.

However, practically speaking I view that monopoly the way I view most monopolies: the costs and risks are probably overstated. We are monopoly-phobic in this country. I think it's an open question whether the currency situation would really be that different without legal tender laws, and I think there's good reason to think the benefits of the monopoly far outweigh the costs. But that's another discussion entirely and not one I've thought about in any great detail yet.

"Theft implies property rights."

You've got it backwards. I have property rights in what I create. A legitimate act of government is to protect my property rights in what I create. An illegitimate act of government is to deliberately diminish my property rights in what I create. A policy of deliberate inflation is illegitimate, and therefore no different in substance than an illegitimate act of any other agent. It is theft.

I would agree with the first four sentences. If the government diminished your right to the fiat currency in your possession, that would be theft.

They don't let us have non-fiat currency.

P.S. Those folks investing in gold should remember that in the not so distant past the government created laws requiring that all gold be handed over.

I hope you mean they won't establish non-fiat currency as legal tender or accept it in payment for taxes. They'll certainly let you have non-fiat currency.

I could trade in rabbit pelts with my local shop keeper if I wanted. The difference between rabbit pelts and dollars is:

1. I can't compel my creditors to accept rabbit pelts as payment for a debt, and
2. I can't give rabbit pelts to the IRS

Other than that, there are no restrictions I'm personally aware of on whatever currency I want to use. At least for the time being. As you note - there is historical precedent for such restrictions.

(game show ding)

Thank you Randy - that was exactly the point I was going to make. Inflation happens to a degree on the margins, when people who know what they are doing are working to prevent it from happening, but deliberate inflation goes against the implicit contract our fiat money system is built on, and definitely harms property rights.

Government control of the money supply is theft along a number of lines, not just the line you are pursuing.

Seven Horwitz states it best in his review of "Taxation is Theft": "A clear message of the book is that one cannot separate inflationary monetary policies from profligate fiscal policy. As with counterfeiting, the lure of inflation is that the inflator can acquire real resources at virtually zero cost. It does this not only directly, but also by reducing the value of the government’s massive debt. For political actors seeking votes, or governments seeking power, inflation is a far more palatable way than taxation to pay for new programs or military adventures. A running theme in several essays is that inflation’s effects are far more subtle than, but just as injurious as taxation’s."

Keynes would be proud. It's like I'm reading Economic Consequences of the Peace.

I'm not sure about the idea that inflation is far more palatable than taxation. Since the 70s I think politicians have found both to be politically problematic.

Well, it was the only useful thing he ever wrote.

Politicians are constantly pursuing inflationary policies; so long as those do not rise above a certain level the public does not notice them ... it is a bit like turning up the heat slowly on a frog resting in a put of water on a stove.

But mommsen1625 if they're constantly pursuing it - if it's expected - it doesn't really matter. The frog analogy is a bad one. Creditors have the ability to charge an inflation premium on their loans, so expected, low, constant inflation isn't really relevant for public finance. The frog, unfortunately, has no such recourse. Slow, constant heat is bad for frogs - it's not that bad for lenders.

Creditors have the ability to charge an inflation premium on their loans, so expected, low, constant inflation isn't really relevant for public finance.

And thereby shifting the burden back to the debtor.

No - not shifting the burden - negotiating the distribution of the expected depreciation in the value of the asset. It's called free exchange - the market, if you will. We generally have positive views about it around here.

Government spending is a cost to the productive.
A cost is a burden.

Credit cards work this way, and I don't deny that it's agreed to.

It's still a burden.

Well, what it pursues is not consistent and it is riven with all the public choice problems one would expect; the frog analogy is a perfect one.

Say I converted my dollars into their goods or services. Then, say the government then decided to take those goods and services away from me over time (by coming into my home and removing some of the objects I'd purchased without telling me). Would that be theft? If yes, then I don't see the point in your argument. If no, then I wonder what your definition of theft is.

Inflation is certainly NOT a risk to any medium of exchange. Changing relative prices, however, are. As an economist, you should know there's a huge difference between those two things.

Since you may convert your dollars into other goods or services, you are not compelled to suffer inflation of the dollars, but you are required to bear the risk of holding something else, like gold, since the price of gold in dollars can either rise or fall. The real coercion in our monetary system is the state's collection of taxes to pay holders of Treasury securities, because I am not free to refuse my tax liability, except to leave the country, whereupon some other band of armed men will tax me elsewhere. If the coercion really bothered you so much, you would refuse to hold Treasuries, refuse to deposit funds in an FDIC insured bank account, refuse to sell your depreciated mortgage backed securities to the Fed or TARP and so on.

Daniel, suppose in 1925 your great grandfather stuffed $10,000US under a mattress. You could buy a house for that kind of money back then easily. You discover it in 2010 still under the same mattress. You can't even put a down payment on a house with that money today. However, if your great grandpappy had bought $10,000 worth of gold coins instead, you would be able to buy the same amount with that gold today as you could then.

Explain to me please why this is not theft. I just don't understand your logic. Theft is when you deprive someone of the use of their property. Wouldn't you say you got deprived of the value of that money?

First, if they did so in 1925 that could legitimately be called theft. The federal government broke a contract with the people no less than twice since 1925. But leaving those points aside, I'm not sure what your justification is. You still have $10,000 but the value has changed. How is that any different from any other object I could inherit? Have you ever used your fiat currency under the impression that it has a constant value or that you have a right to claim a constant value?

RE: "Theft is when you deprive someone of the use of their property."

Precisely. And if anyone deprived you of the use of that $10,000 it would be theft. In 1933 and 1971 the government did deprive you of certain uses of that currency that you had a right to exercise. But if we abstract away from that and consider dollars you inherited in 1972, I'm not sure what the problem is. You can't be deprived of a right you don't have and we've never had a right to a constantly valued currency.

Daniel, it sounds like you are apologizing for it. The fact is the government stole value from me, because I've been deprived of the full use of the money. If that was my great-grandfathers money, he worked very hard to earn it. He stored his wealth into it, wealth he was planning to either use or pass on to his descendants. Today I cannot take advantage of that wealth because the government took it away. Inflation is dishonest, and it's thievery.

"Have you ever used your fiat currency under the impression that it has a constant value or that you have a right to claim a constant value?"

Of course I do! Before I even knew what inflation was, I expected my money to keep its value. Everyone does. When you ask most people who don't know much about economics why prices keep going up they blame it on capitalism.

That's like asking if I really expected to be able to keep my property with break-ins and lootings on the rise.

Dooglio, suppose in 1825 your ancestor left you a note telling you he saved precious metal bars in a chest and you dig it up only to find the ingots are made from aluminium. Was there theft here or not?

Actually, a better exercise is to assume that the same $10,000 were gaining interest, which is what most people do, instead of being placed under the mattress.

Now, given low and stable inflation over the years, which, of course, leads to anchored inflationary expectations, then absent any unexpected changes in the price level, we come to expect the Fisher Effect to dominate, and his great grandfather in 1925 as well as his descendants, really only need to worry about the idiosyncratic risk-return tradeoff.

--Pingry

I also mostly agree. Non-productive (counter-productive, arguably) would be more accurate. "Thievery" seems like a bit of stretch.

I might would quibble over the ethics with you...

You're excusing inflation due to a technicality?

I have an idea. You give me 10 gold coins that are 99.999% pure. I'll melt them down and create new coins that look exactly the same, but have a copper core consisting of 50% of the total metal. I'll create 20 new coins and pay you back your 10 with the newly minted coins. We'll both be equally happy!

No, that's not what I'm saying at all. In the interest of not commenting too much I'll let someone else tell you why it's not.

On second thought, I'll only melt down 5 of the coins to create the ones I pay you back with. I'll keep the 5 remaining solid gold coins and give you 10 half gold/half copper coins. I wouldn't want to profit too much on our exchange.

I semi-agree with you DK. However I have to ask: would you feel the same way if the threat were DEflation? Don's argument seems to work either way. Maybe I am missing something.

It definitely works either way. There's no doubt that inflation and deflation have important distributive consequences - both have their costs and both have their benefits. I'm not sure where the theft comes in, though. I also think it's legitimate for someone to prefer one over the other as a lesser evil. I prefer some inflation as a lesser evil. But that doesn't mean I think deflation is somehow unethical.

Yeah some people win and some people lose with inflation and some people win and some people lose with deflation. Libertarians believe the good guys win with deflation and the bad guys win with inflation

nonsense. lowered prices due to increased productivity is the norm when monetary base is not tinkered with.libertarians definitely hate inflation because it causes increased prices amongst other things. you are conveniently assuming that tinkering with the monetary base (by non market force like the govt) by 'deflating' it is favored by libertarians.thats wrong.please get back to austrian econ 101.

I think I mostly agree. But my remaining concern is with the inevitable unequal effect of inflation. Inflation changes my ability to buy goods since not all goods inflate equally. In that respect an entity outside of my normal exchange dictates how much of my wealth it takes to acquire a good or service. If taxation (put simply) is theft because it is the forceful acquisition of wealth i've generated (denominated in dollars) that I wouldn't have otherwise given then I don't think it's too large a stretch to see inflation in the same light.

Definitely. And I don't think this 4% inflation target that Blanchard has raised is necessarily wise policy. I just don't think it's theft either.

I don't understand why you think taxation and inflation seem comparable to you - what is the argument. You definitely have a right to your dollars. I just don't see how you can claim a right to a constant value for those dollars, any more than you can claim a right to a constant value to any other asset. Your car loses value over time too. Land you own may gain value. A first edition book may gain value. A piece of clothing that goes out of style may lose value (even if there's no wear and tear). Your property rights to these posessions aren't violated by this because you had no legitimate claim to a constant value for these products. Why are the dollars you own any different? The price of dollars - the interest rate - takes expectations about the change in the value of these dollars into account.

The method of inflation is not being addressed. The Federal Reserves prints more dollars backed with legal tender laws. So the government derives a benefit through use of force. Sounds like theft to me.

The value is removed from those that have dollar holdings or contracts that have them paid in dollars, or creditors. This theft might be expected and included in the interest rate.

Inflation is only theft (maybe theft isn't even the right word) when the currency being inflated is government enforced legal tender.

Daniel, I think that's the best way I've had it explained to date. And I think the argument stands strongly. To break it down to a Boudreaux-like example, if I were to exchange two apples for one potato only later to have to provide three apples to my neighbor for a single potato that would not be "theft". It might make me consider just growing my own potatoes (note: I can't print dollars...legally), but it wouldn't be theft. Of course a counter-argument is if I had made a (tacit) agreement with my neighbor and he later broke it. i.e. there is a tacit agreement between myself and the U.S. Government for the value of it's currency. I don't believe that agreement exists. In other words: No warranty for value expressed or implied.

I'll say you sold me on it. I love the internet.