Inflation is Disordered

It’s always sad for me when I see an older person who should be retired working a minimum wage job. Every door greeter at Walmart is someone’s grandparent who has to work because they don’t have an adequate retirement fund. There could be personal reasons for this, but there certainly are institutional reasons. Economic policy affects the lives of people in positive and negative ways. Economic policy is not a set of amoral tools. The very nature of tools suggests they have an end, a purpose that can be judged. The most well-known economic policy is that of inflation. There is plenty written about the effects of inflation. However, little is said about the morality of inflation.

Over the weekend I read De Moneta. It’s a treatise on money written by Nicholas Oresme, a Bishop and Philosopher during the late scholastic period in France. In De Moneta Oresme develops an ethical theory of money. One that modern economists and conservatives would be wise to take into consideration. The truth is inflation is unjust. It leads to the exploitation of the masses by the government for the benefit of the few.

The Nature of Money

It is often said Money is a medium. To put it simply, Money was invented to make life easier. 

Before money, trade and commerce were done by barter. A person would have to trade one good for another good directly. You’d trade your pears for the butcher’s steak. Barter is an inefficient system for many reasons. One, pears (most goods) don’t stay ripe forever. You have a limited amount of time to barter with your pears. This also makes saving impossible. Two, pears aren’t super easy to divide. Are you going to trade half a pear for a gumball? Three, it’s difficult to transport large amounts of pears. If you need to make a big purchase across the country, you’d need to ship a truckload of pears. Four, Some people don’t like pears. This is problematic if you want to trade with them. Money solves all these problems and several others. Money is necessary for society and an economy to function efficiently. 

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The early forms of money were commodity-based. These are known as commodity currencies. Usually, the commodity was made out of precious metals, although not always. These metals were made into coins, again to make life easier.

Money - Coins

These coins were made of alloys composed of precious metal and a cheaper metal. One gram of gold is small and easy to lose. By mixing it with a cheaper metal they could make larger coins that were a convenient size.

It was also proper to have silver money, less precious, suitable for giving change and for adjustments of price, and for buying goods of lower value. And since a particular country is not always furnished with silver in proportion to its natural riches, besides which, the portion of silver which would be justly due for a pound of bread or the like, would be too small to hold in the hand, money came to be coined of a cheaper metal together with the silver, and that is the origin of our' black' money, which is suitable for petty dealings

Nicholas Oresme, De Monete pg 7

Because the average citizen is not a metallurgist, the average person can’t tell how much precious metal is in the coin. A system of trust and uniformity is necessary to have a monetary system. To ensure trust the process of producing coins usually falls to a powerful and “trusted” institution. You’ll notice in the picture above that the coins all have the face of the emperor on them. Coinage, the process of producing coins, was almost always done by the government. Be it the Roman Empire, a French Monarch, or The United States of America.

Furthermore, it was ordained of old, with good reason, and to prevent fraud, that nobody may coin money or impress an image or' design on his own gold and silver, but that the money, or rather the impression of its characteristic design, should be made by one or more public persons deputed by the community to that duty, since, as we have said, money is essentially established and devised for the good of the community. And since the prince is the most public person and of the highest authority, it follows that he should make the money for the community and stamp it with a suitable design.

Nicholas Oresme, De Monete pg 9-10

Making New Coins

The responsibility of coinage falls on the ruling governments. During Oresme’s time, these would have been monarchies. These monarchies can and did use their power of coinage to benefit themselves financially. One way monarchies would do that is by changing the “weight” of a coin. By changing the weight of a coin they changed, usually lower, the amount of precious metal in a coin. 

The monarchy would claim the coins need to be submitted to be reminted due to wear and tear. Maybe the coins need to be updated to have the face of the new king. The excuse doesn’t really matter. When the coins were submitted to be reminted the composition of the coin would be altered. Coins are comprised of two metals: precious metal and cheap metal. What the monarch would do is reduce the proportion of precious metals in the coin, keep it for himself, add more cheap metal to the coin so that it looked the same, and then claim the coins had the same value as before. 

But I am now speaking of a definite alteration of the weight or quantity of money without any change of name or value. And it seems to me that such a change is plainly unlawful, especially in a Prince who cannot do it without disgraceful injustice...Consequently, if the weight is not true, this is at once seen to be a foul lie and a fraudulent cheat. For measures of corn and wine and other measures are frequently stamped with the king's public mark, and any man tampering with these is held to be a forger.

Nicholas Oresme, De Monete pg 19

This increases the total amount of coins without a corresponding increase in precious metals. It’s how inflation was done during the medieval era.

An Example

Assume you are a fisherman and you sell fish to make money. Through your hard work, you’ve saved up 10 coins. The government now says they need to remint your coins because there’s a new king and they need to put his face on the coin. You take your new coins to the mint to be updated, and they say come back next week and we’ll give you back 10 new and improved coins. 

During that week, the mint takes your coins, melts them down, and makes 15 new coins out of your original 10. So the amount of gold that was in 10 coins is now distributed across 15 coins. So each coin has less gold in it than it did previously.

You then return to the mint to pick up your coins, and they give you 10 coins and keep the remaining 5 for themselves. Your current set of 10 coins contains less gold than the 10 coins you originally gave the mint. 

They have taken your gold and you are unaware of it.

The Injustice

And so the prince would be at length able to draw to himself almost all the money or riches of his subjects and reduce them to slavery. And this would be tyrannical, indeed true and absolute tyranny […] I doubt whether it should not rather be termed robbery with violence or fraudulent extortion.

Nicholas Oresme, De Monete pg 25, 28

Plainly this is robbery and forgery. The monarch through the use of the mint has taken your gold and lied to you in the process. However, it’s more than that. It becomes a form of slavery.

Back to the example:

You return to your fishery with your 10 coins and go back to work catching and selling fish. The king comes by with his new 5 coins and says he’d like to buy a nice cod fillet. You tell him the usual price is 2 coins, and he trades you 2 of his 5 coins for the cod fillet. At the end of this transaction, you have 12 coins. While the king has 3 coins and a cod fillet.

You now have 12 coins and think yourself a savvy businessman/fisherman; meanwhile, the king has robbed you of both your coins and now a cod fillet.

Through this whole process, you lost gold and your time and energy. The 12 coins you now have contain less gold than the original 10 coins you gave to the mint. And the time and effort put into fishing have been given to the king in exchange for gold that was yours, to begin with. 

To Oresme this is akin to slavery. 

The particularly nefarious part of it all is that you, the fisherman, have no idea you’re a slave.

Our Current Economy

This is how inflation worked in the medieval era, but it works similarly today. There is a difference: we do not use a commodity currency; we use a fiat currency. However, the dynamic is the same. In fact, it’s even easier for the government to steal wealth from the public. 

In our current fiat money system, Central Banks control the money supply and do so by the buying and selling of Treasury Bonds. The banks and financial institutions are the first to get the newly created money and are therefore in the same position as the King in the above example.

When the prince does not announce beforehand the date and the scheme of the alteration which he means to make, some persons, by their own cunning or through their friends, secretly foreknow it, and buy up merchandise with the weak money to sell again for the sound, get rich quickly, and make an excessive and undue profit against the lawful course of normal trade.

Nicholas Oresme, De Monete pg 34

Back to the example:

You work in a fishery and have $10. A Banker comes by with his $5 the government created for him. And he says he’d like to buy a nice cod fillet. You tell him the usual price is $2, and he trades you $2 of his $5 for the cod fillet. At the end of this transaction, you have $12. While the Banker has $3 and a cod fillet. The banker did almost nothing and he got a cod fillet and $3. Meanwhile, you are all the poorer. You now have $12 out of $15 instead of $10 out of $10, and you’re out the time and effort it takes to sell a cod fillet.

“for this seems nothing less than a ransom from slavery, which no king or good prInce ought to exact from his subjects.” Nicholas Oresme, De Monete pg 41-42

Inflation is a way for the elites of society to exploit the common man. While the above examples are simplified the same dynamic happens with your salary and retirement account. All the money you earn and save in your IRA or 401K is slowly having its value extracted and transferred to the financial elites. The sacrifices you make to save for retirement or your kid’s college funds are being taken from you.

Economists will say that mild inflation of 1-2% a year is healthy for an economy. It’s already been shown that the act of inflation is itself disordered and akin to robbery and fraud. To add further evidence of its fraud, economists have the concept of rational expectations. The gist is if people know inflation is going to happen they’ll adjust their behavior to defend against the coming inflation, and the tools of fiscal and monetary policy won’t be as effective. Thus the incentive for the tools to “work” optimally is to keep them hidden. They have to deceive the public.

But 1-2% a year ads up. Not to mention the mechanics of modern-day inflation are not finely tuned and can lead to massive decreases in the value of your savings, more than just 1-2%. 

The graphic below shows the decline of the Purchasing Power of a Dollar.

USA Money Decline

The line shows how much $100 is worth compared to $100 in 1913. Inflation had been so relentless that $100 in 1983 would only be worth $10 in 1913. If your grandmother had $100,000 in her retirement account in the year 2000 and did nothing with it, in 2021 the account would still have $100,000, but it would only be worth $65,472. Plenty of people live 20 years past their retirement. 

Inflation is the reason there are grandparents working at Walmart greeting people. They did nothing wrong. Their retirement was stolen from them.

No government ought to exploit its subjects. Yet we let our politicians do it routinely. Inflation is deceptive. It is theft. It is slavery. It is unjust

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