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KAZVorpal -> RE: Money Question (8/31/2007 1:32:46 PM)
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I've written more than one article on inflation and the Federal Reserve...but more interesting, probably, is the inflation calculator I wrote. It lets you calculate, if I recall correctly, the value of money from any year of the 20th century, backward or forward with the present...although it's using 2005 dollars, as that's the last time I updated it.
The reason inflation is harmful is that it's a tax on the poor, and to a lesser extent the middle class:
The more wealth you have, the higher a percentage of your wealth will typically be stored in assets that valuate in response to inflation, like real estate and stocks. Likewise your income will include both cost of living raises AND separate raises to reflect your performance or tenture...or your income will be from investments or business revenue that, again, respond(s) to inflation.
But if you are poor, most of your assets are in consumer products or cash. You have a savings account that doesn't even pay as much as inflation, much less inflation plus interest. Your income increases by some token amount each year (unless you've chosen an optimal career path, which is difficult without experience because of labor laws pricing you out of doing so), without separate cost of living raises. In essence, every percentage point of inflation represents a LOSS, to you.
What's more, the natural course of an economy is for wealth to increase, while cost of production decreases, so that there is moderate DEflation. The inflation we suffer is an artificial condition, imposed by people whose official goals actually do acknowledge, in prettier words, that they're robbing the poor to benefit the wealthy. This is one of the unhealthy functions of the Federal Reserve, along with keeping employees at a disadvantage by inflating unemployment.
On the other hand, the value of ALL things is whatever people are willing to trade for it. To complain that money has no real value is, therefore, contradictory. I do not support the dangerous premise of returning to a gold standard, either. Because objective wealth in society increases every year, depending on a completely stagnant, uncontrollable monetary foundation would make Depressions, like those preceeding the dissolution of the gold standard, inevitable. There would be constant deflation, which would be resisted constantly by the economy, with periodic bubble-bursts of adjustment.
I think Miltron Friedman had the best idea; a currency whose supply was increased in careful synchronicity with the increase of wealth in the economy. This would allow for the slight natural deflation caused by advancements in technology, which benefit even the poor. It should also (starts punching Microsoft Windows for interrupting his typing) be done in some way other than by giving unearned money to wealthy banks, the way the Federal Reserve does. Even as a minarchist, I'd find the government actually spending the newly printed money directly to be a more tolerable means of introducing it into the economy.
Of course even better would be for government to get out of the business of money, altogether. We can't trust it to manage less easily abused aspects of society, much less money. Banks could compete to produce a universally desirable currency, and that competition would both produce better results, and also serve as an absolutely irresistable means of keeping them in line, that the government does not have.
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