Inflation Is a Form of Embezzlement
Monetary inflation is just a type of embezzlement. Historically, inflation originated when a country’s ruler such as king would force his citizens to give him all their gold coins under the pretext that a new gold coin was going to replace the old one. In the process of minting new coins, the king would lower the amount of gold contained in each coin and return lighter gold coins to citizens.
Because of the reduced weight of gold coins that were returned to citizens, the ruler was able to generate extra coins that were employed to pay for his expenses. What was passing as a gold coin of a fixed weight was in fact a lighter gold coin. On this Rothbard wrote,
More characteristically, the mint melted and re-coined all the coins of the realm, giving the subjects back the same number of “pounds” or “marks”, but of a lighter weight. The leftover ounces of gold or silver were pocketed by the King and used to pay his expenses.1
What we have here is an inflation of coins, i.e., an increase in the quantity of coins brought about by the ruler making the gold coins lighter. The extra gold coins that the ruler was able to generate enabled him to channel goods from citizens to himself.
The process of embezzlement was further enhanced when for safety reasons instead of holding their gold themselves, individuals began to store their gold with banks. To acknowledge this storage the banks issued gold receipts. Over time, these receipts became accepted as the medium of exchange. Problems, however, occurred once the banks started to issue receipts that were not backed by gold. The unbacked gold receipts were now employed in the economy along with the fully backed gold receipts. This was an inflation of receipts because of the introduction of unbacked gold receipts (unbacked gold receipt were masquerading as the true representatives of money proper, gold).
The issuer of unbacked receipts could now engage in an exchange of nothing for something. This produced a situation where
Article from Mises Wire