Lies about Inflation

Have you noticed the increase in news about inflation in your daily updates recently? Perhaps you have noticed increases to certain prices of regular items you purchase in your shopping trolley or in renewal prices for insurance, for utilities and the latest gadgets on the internet? How about fuel for your vehicle? Maybe you are conditioned to prices going up as a result of a lifetime of seeing the pound in your pocket be worth less and less. Nowadays it’s become rare for anyone to even carry coins in their pocket. We have become convinced, like everyone else, that plastic cards or mobile phones are how we spend money. After all, it’s more efficient, isn’t it? We don’t even have to go to the bank anymore. Everything is done online in the digital world. So when prices go up we may not even notice until we check our bank balance at the end of the month and find out that our wages, pension or salary aren’t covering our costs like they used to. So we all end up asking for pay rises and inevitably working longer hours and harder to stay where we were years ago.

So what is inflation and why has it been a major part of our lives for the last few thousand years?

In the financial media, inflation is blamed on manufacturers for increasing prices on their products in order to gain more profits. Manufacturers point the finger at the rising costs of commodities, their raw materials putting up costs. Central Banks talk about inflation as a target that needs to be kept in check by raising or lowering interest rates, as if they are powerful enough to actually control it. Employers blame employees for making impossible wage demands and forcing them to raise prices even further.

Yet inflation actually is not caused by price increases at all.

In a recent article published by the Mises Institute, the centre for the school of Austrian Economics, Good Economic Theory Is Always Grounded in the Real World | Mises Wire the author, Frank Shostak, states “Inflation is not about a general increase in prices but about embezzlement by means of increases in money supply“.

He goes on to explain how, in the past, once gold and silver had been long established as the commodity chosen as the most suitable for exchange, because of their duration, their value, and the relative ease with which they could be carried, the king would demand that existing coins should be handed in so that a new coin could be issued, with his head on it. All the coins would be melted down and a proportion of base metal added to the mix before the new coins were minted. This meant that the peasants were given back exactly the same number of coins that they had been forced to hand in, which somehow looked even shinier than before, and the king was left with a surplus of coins to meet his expenses. Which meant that, from time to time, as new coins were minted throughout the world, a greater and greater number of coins were in circulation.

When we measure the products and services that are exchanged in our community this is known as the wealth of the community. The more exchanges that take place the richer we all become with the amount of stuff we own, the consumables we partake of and the work we do for each other. The less exchanges that take place then the poorer our society becomes.

However, when the way we measure wealth has become diluted with more coins in circulation than there were before, as in the example with gold coins being diluted with base metal, then prices of goods and services increase because there are now more coins circulating.

We should, therefore, understand that price increases are caused by inflation of the currency supply.

Has this been happening lately? Is the Queen adding base metal to our gold? Well, since 1971, when President Nixon took away the link between the value of the dollar and gold, because he was worried about the amount of gold that was leaving the country, dollars and pounds and every other fiat currency in the world have been continually been created by government debt through the issuance of Treasury Bonds, known as gilts in the UK.

In the last couple of years, since the pandemic made us all run for our lives, hiding in our houses until we found a vaccine, we have all accepted and allowed, willingly, unprecedented amounts of government debt in order to keep us all in furlough and make sure we had enough funds in our accounts to do massive amounts of online shopping.

The amounts of dollars, pounds, euros and every other fiat currency on the planet, swirling around in larger and larger bubbles of Dow Jones, FTSE and other stock indices, increased house prices, fine art auction houses, cryptocurrency markets and everywhere else that those with currency store it away to seek more profit, tell us that, without a doubt, we live in times of out and out inflation.

Since our economy has been designed to make the rich richer, with created fiat currency flowing out from the Bank of England to buy old, expiring gilts and Treasury Bonds from investment banks and insurance companies, so that they can then have sufficient pounds to purchase new gilts and bonds to use them as securities to loan out mortgages, business loans and offer credit on credit cards, the inevitable result is that the poor are made poorer and the struggles of the unemployed, the pensioners, the benefit dependent low wage earners and those having to pay increasing rents on low quality homes are magnified beyond sufferability.

Where will it all end? It won’t. Governments want to get re-elected therefore tax rises will never be sufficient to pay off the enormous debts that democratic governments owe. Now that our government has discovered how easy it is to borrow more and more and the Bank of England has become used to quantitative easing and has now extended their purchase of commodities such as stocks and housing directly, with the pressure that is being applied from growing groups of protesters to tackle climate change, we will see trillions more pounds being created in exchange for gilts and bonds, promising longer and longer pay back dates, providing security for higher mortgages and bigger business loans. Everyone wins don’t they?

Except, the planet is finite. We only have so many raw materials hidden within the earth, or beneath the seas, or swimming, flying, running and growing, that we can plunder to satisfy a growing demand. At some point we have to say no – no more – we can choose another way. Not in my name. I will not vote for this. I will not buy this stuff that I don’t need. I will get by with less.