10/25/2011

A monetary policy of inflationism is inherently undemocratic


From "The Emergency Argument In Favor of Inflationism" section of The Theory of Money & Credit, Mises writes:
"The government, in this regard supported by only a minority of the people, believes that there exists an emergency that necessitates a considerable increase in public expenditure and a corresponding austerity in private households. But the majority of the people disagree. They do not believe that conditions are so bad as the government depicts them or they think that the preservation of the values endangered is not worth the sacrifices they would have to make. There is no need to raise the question whether the government's or the majority's opinion is right. Perhaps the government is right. However, we deal not with the substance of the conflict but with the methods chosen by the rulers for its solution. They reject the democratic way of persuading the majority. They arrogate to themselves the power and the moral right to circumvent the will of the people. They are eager to win its cooperation by deceiving the public about the costs involved in the measures suggested. While seemingly complying with the constitutional procedures of representative government, their conduct is in effect not that of elected officeholders but that of guardians of the people. The elected executive no longer deems himself the people's mandatory; he turns into a F├╝hrer.

The emergency that brings about inflation is this: the people or the majority of the people are not prepared to defray the costs incurred by their rulers' policies. They support these policies only to the extent that they believe their conduct does not burden themselves. They vote, for instance, only for such taxes as are to be paid by other people, namely, the rich, because they think that these taxes do not impair their own material well-being. The reaction of the government to this attitude of the nation is, at least sometimes, directed by the sincere wish to serve what it believes to be the true interests of the people in the best possible way. But if the government resorts for this purpose to inflation, it is employing methods which are contrary to the principles of representative government, although formally it may have fully complied with the letter of the constitution. It is taking advantage of the masses' ignorance, it is cheating the voters instead of trying to convince them.

It is not just an accident that in our age inflation has become the accepted method of monetary management. Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism."
This was a very revealing passage and was the first time I thought about this, and viewed inflation in this light. I thought this would be beneficial to share for a few reasons. The first of course is just to give an example of Mises' genius and his ability to see things from all angles.

Additionally I thought this concept might be useful to those whom are interested in discussing and spreading the philosophy of liberty and Austrian Economics with others. The idea of inflation as an undemocratic policy could provide an additional angle in which one could approach the layman about the evils of inflation, or when discussing the economics of monetary policy with a progressive whom has received mainstream education. Normally the economic argument results in a most unsatisfying standoff between two different fundamental assumptions about what generates economic prosperity, both of which are somewhat non-falsifiable and thus no real progress can be made with someone whom is absolutely convinced of the Keynesian doctrine. Having said that, more often than not such a person tends to be a rather strong supporter of democracy and the idea of a state that is based on representative government. It would be interesting to see how one would reconcile those pro-democracy views with the call for an inflationary monetary policy, given its inherently anti-democratic nature!


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