The Praxeological Case Against All Inflation
The claim that inflation can be beneficial — if only we find the "optimal rate" — is one of the most pervasive economic fallacies of our time. This essay demonstrates, through praxeological reasoning, why inflation is always harmful, regardless of the rate, and why no central planner can ever determine an "optimal" amount of monetary debasement.
The Two Pie Charts: Money and Goods
To understand inflation, we must first understand what money actually is. Money is not wealth — it is a claim on wealth. The total money supply represents the totality of claims, and the total goods and services represent the totality of wealth those claims can purchase.
Visualize two pie charts:
MONEY SUPPLY GOODS & SERVICES
┌───────────┐ ┌───────────┐
│ │ │ Chickens │
│ 100% │ maps to ├───────────┤
│ (whole) │ ═══════════════► │ Fish │
│ │ ├───────────┤
└───────────┘ │ Baskets │
└───────────┘
The money pie — regardless of how many units it's divided into — always represents the whole. The goods/services pie represents everything available for purchase. Prices are simply the mapping between these two pies.
Why the Initial Number of Units Is Irrelevant
Suppose our island economy has 30 chickens available for trade.
Now consider two scenarios:
Scenario A: 10 Coins Total
MONEY (10 coins = 100%) GOODS (30 chickens)
┌──────────────────┐ ┌──────────────────┐
│ ┌──┬──┬──┬──┬──┐ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │1 │2 │3 │4 │5 │ │ ═► │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ ├──┼──┼──┼──┼──┤ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │6 │7 │8 │9 │10│ │ │ │
│ └──┴──┴──┴──┴──┘ │ └──────────────────┘
└──────────────────┘
Price: 1 coin = 3 chickens
All 10 coins buy all 30 chickens.
Scenario B: 30 Coins Total
MONEY (30 coins = 100%) GOODS (30 chickens)
┌──────────────────┐ ┌──────────────────┐
│ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ 30 coins │ ═► │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ in total │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │ │ │
└──────────────────┘ └──────────────────┘
Price: 1 coin = 1 chicken
All 30 coins buy all 30 chickens.
The economies are identical. The 30-coin scenario is simply the 10-coin scenario with finer divisions. The ratios remain the same. The purchasing power of "all the money" equals "all the goods" in both cases.
This is basic mathematics: 10/10 = 30/30 = 100/100. The denominator doesn't matter when you're representing a whole.
The Five Properties of Money
For something to function as money, it must possess:
- Divisibility — can be broken into smaller units
- Scarcity — limited supply
- Portability — easy to transport
- Durability — doesn't decay
- Recognizability — easily verified
A single indivisible coin would fail as money because it lacks divisibility. You couldn't buy 1 chicken if the single coin is worth all 30 chickens — there's no way to make change.
So when someone argues "1 coin would be a nightmare, 10 coins is better," they're not making an argument for inflation. They're making an argument for divisibility. And divisibility is a property of the monetary unit, not a function of printing more money.
Going from 1 coin to 10 coins at the start is simply establishing the divisions. It's like saying a pizza cut into 8 slices feeds more people than a pizza cut into 4 slices — absurd. The pizza is the same size. The slices are just smaller.
Where Inflation Actually Begins
Inflation doesn't occur when you establish your initial money supply. Inflation occurs when you expand the money supply after prices have already formed.
Let's see what happens when the chief creates 5 counterfeit coins after the economy has been running on 10:
Before Inflation
MONEY SUPPLY (10 coins) GOODS (30 chickens)
┌─────────────────────┐ ┌─────────────────────┐
│ ┌──┬──┬──┬──┬──┐ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │1 │2 │3 │4 │5 │ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ ├──┼──┼──┼──┼──┤ │ ═► │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │6 │7 │8 │9 │10│ │ │ │
│ └──┴──┴──┴──┴──┘ │ │ │
└─────────────────────┘ └─────────────────────┘
Each coin = 10% of total purchasing power
1 coin = 3 chickens
10 coins = 30 chickens (everything)
The Moment of Counterfeiting
MONEY SUPPLY (now 15 coins) GOODS (still 30 chickens)
┌─────────────────────────┐ ┌─────────────────────┐
│ ┌──┬──┬──┬──┬──┐ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │1 │2 │3 │4 │5 │ │ │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ ├──┼──┼──┼──┼──┤ │ ═► │ 🐔🐔🐔🐔🐔🐔🐔🐔🐔🐔 │
│ │6 │7 │8 │9 │10│ │ │ │
│ ├──┼──┼──┼──┼──┤ │ │ (UNCHANGED!) │
│ │⚠ │⚠ │⚠ │⚠ │⚠ │ NEW! │ │ │
│ └──┴──┴──┴──┴──┘ │ │ │
└─────────────────────────┘ └─────────────────────┘
▲
│
The money pie EXPANDED
but goods pie DID NOT
The critical insight: The goods pie didn't grow. There are still only 30 chickens. But now there are 15 claims instead of 10.
The Fraud: Coins Pretending to Be What They're Not
Here's where the theft occurs. When the chief walks into the market with his 5 new coins, prices haven't adjusted yet. The merchants still think there are only 10 coins in existence. They price accordingly.
WHAT THE MARKET THINKS REALITY
┌─────────────────────┐ ┌─────────────────────────┐
│ Total coins: 10 │ │ Total coins: 15 │
│ │ │ │
│ Chief's 5 coins = │ │ Chief's 5 coins = │
│ 50% of money supply │ │ 33% of money supply │
│ │ │ │
│ 1 coin = 3 chickens │ │ 1 coin = 2 chickens │
└─────────────────────┘ └─────────────────────────┘
The chief's 5 coins are cosplaying as half the money supply when they're actually only a third. This is pure fraud. The coins have no backing — no prior production, no saved value, no deferred consumption. They're claiming purchasing power they never earned.
The chief walks in and buys 15 chickens for his 5 fake coins (at the old price of 3 chickens per coin).
If the chief tried this with 5 rocks instead of 5 coins, no one would accept them. Why? Because rocks aren't money — everyone knows rocks have no claim on the goods pie. But the counterfeit coins are indistinguishable from real coins, so they inherit the legitimacy of the real money supply fraudulently.
The Theft Illustrated
BEFORE: 10 coins in economy, 30 chickens
Price: 1 coin = 3 chickens
Villagers collectively hold 10 coins
Villagers can buy all 30 chickens
AFTER INFLATION SPREADS: 15 coins in economy, 30 chickens
Price: 1 coin = 2 chickens
Original villagers still hold 10 coins
Now they can only buy 20 chickens
Chief holds 5 coins
Chief can buy 10 chickens
THEFT: Villagers lost 10 chickens worth of purchasing power
Chief gained 10 chickens worth for FREE
The math is simple: The villagers went from owning 100% of purchasing power (30 chickens) to owning 67% (20 chickens). The chief went from 0% to 33% (10 chickens). Those 10 chickens were stolen.
The Proof: Transparent Inflation Has Zero Effect
Here's the devastating test. Your opponent even admitted this:
If everyone knew the money supply just went from 10 to 15, what would happen?
Instantly:
- Price adjusts from 1 coin = 3 chickens to 1 coin = 2 chickens
- Every holder's purchasing power adjusts proportionally
TRANSPARENT INFLATION
┌────────────────────────────────────────────────────────┐
│ │
│ Before: 10 coins total, 1 coin = 3 chickens │
│ After: 15 coins total, 1 coin = 2 chickens │
│ │
│ Original villagers' 10 coins: │
│ Before: Could buy 30 chickens (100%) │
│ After: Can buy 20 chickens (67%) │
│ │
│ But wait — if prices adjusted INSTANTLY, │
│ the chief couldn't buy at old prices! │
│ │
│ His 5 new coins would only ever buy 10 chickens, │
│ not 15. He couldn't exploit the price lag. │
│ │
│ The EXTRA theft requires DECEPTION. │
│ │
└────────────────────────────────────────────────────────┘
If inflation were announced in advance and prices adjusted immediately, the new money would still dilute existing holders, but the counterfeiter couldn't exploit the lag. He'd get exactly 10 chickens (his fair 33% share), not 15 chickens (50% at old prices).
The Cantillon Effect — getting goods at OLD prices with NEW money — only works because inflation is hidden. The mechanism of maximum theft requires that producers don't know they're being robbed until after the transaction.
This proves inflation isn't some economic lubricant or growth mechanism. It's fraud that only functions through deception.
The Cantillon Effect Illustrated
Let's trace exactly how the theft unfolds over time:
TIME →
─────────────────────────────────────────────────────────────────►
T0: Chief has 5 new coins. Market price: 1 coin = 3 chickens
Chief buys 15 chickens for 5 coins (at old prices!)
Chief now has HALF the chickens for nothing.
T1: Farmer now has 5 "extra" coins. Goes to buy fish.
Fisherman notices more coins floating around...
Raises price. Farmer's coins worth less than when he got them.
T2: Money spreads. Everyone adjusts to 15 coins in circulation.
New price: 1 coin = 2 chickens.
The 10 coins original villagers held?
Now only buy 20 chickens instead of 30.
RESULT:
┌─────────────────────────────────────────────────────────┐
│ Chief: Got 15 chickens for nothing │
│ Farmer: Got 5 coins, but they buy less │
│ Original holders: Lost 33% purchasing power │
│ │
│ Total chickens produced: UNCHANGED (still 30) │
│ Wealth was REDISTRIBUTED, not created. │
└─────────────────────────────────────────────────────────┘
The Cantillon Effect isn't a side effect of inflation — it's the entire mechanism. Inflation is a wealth transfer from those furthest from the money printer to those closest to it.
The Crop Theft Analogy
Let's flip the script. Instead of money being debased, imagine goods being stolen directly:
THE FARMER'S SITUATION
─────────────────────────────────────────────────────────────────
Year 1: Farmer raises 10 chickens
Thieves steal 1 chicken (10%)
Farmer sells 9, saves coins for better coop
Year 2: Farmer raises 10 chickens (couldn't afford coop upgrade)
Thieves steal 1 chicken
Farmer sells 9
Year 3: Bad season — only raises 8 chickens
Thieves still steal 1 (now 12.5%!)
Farmer sells 7
Can't afford feed for next year...
OUTCOME: Production STAGNATES then DECLINES.
Society has FEWER chickens over time.
Now the inflation apologist says: "But the thieves give those chickens away! It goes back into the economy!"
"BUT THE THIEVES REDISTRIBUTE!"
─────────────────────────────────────────────────────────────────
Thieves' 1 chicken → given to "the poor"
Farmer's situation → unchanged (still robbed)
Next year:
- Farmer can't invest in better equipment
- Farmer can't save for bad harvests
- Farmer might quit farming entirely
The thieves are ATTACKING THE SOURCE of their own sustenance.
Society doesn't get MORE chickens because thieves redistributed.
Society gets FEWER chickens because producers are punished.
This is obvious when we discuss goods. Everyone understands that stealing from farmers reduces farming. But inflation IS theft from producers. It extracts real value from those who create goods and services and transfers it to those who create nothing.
Theft Reduces Production — ALWAYS
This is an iron law. When you steal from producers:
- They have less capital to reinvest
- They have less cushion for bad times
- They have less incentive to produce
- Some will quit producing entirely
Even if the thief uses stolen goods "productively," they've still:
- Removed the producer's ability to choose their own investments
- Diverted resources from market-validated uses to arbitrary ones
- Created uncertainty that discourages future production
You cannot make society richer by stealing from producers. The entire output of society comes from production. Parasitism on production can only reduce total output, never increase it.
The Stolen Concept Fallacy
The inflation advocate's position contains a fatal contradiction:
THE INFLATION ADVOCATE'S HIDDEN PREMISE
─────────────────────────────────────────────────────────────────
Claim: "Inflation helps the economy grow"
This presupposes:
1. There IS an economy (people producing goods/services)
2. People ARE producing (working, saving, investing)
3. Production IS possible (property rights exist)
But inflation UNDERMINES all of these:
1. It extracts from the economy
2. It punishes producing/saving
3. It violates property rights
The advocate borrows concepts (economy, growth, production)
that only exist in a non-inflationary framework,
then uses them to justify inflation.
This is the STOLEN CONCEPT FALLACY.
You cannot tell us how to "progress society" when your mechanism attacks the very thing that creates progress. It's like a tapeworm claiming credit for its host's health while draining its blood.
The inflation advocate says: "We'll take 5% of everyone's purchasing power and invest it wisely for the collective good."
But this presupposes:
- They know what "the collective good" is (they don't — ECP)
- They know better than individuals what to invest in (they don't — knowledge problem)
- Theft doesn't reduce production (it does — always)
- Their value judgments override everyone else's (pure assertion)
Their "optimal inflation" theory is empty. It tells us nothing about how to actually produce wealth. It only tells us how to redistribute wealth that was produced according to principles inflation violates.
The "Beneficial Ventures" Fallacy
The inflation advocate retreats to a utilitarian argument: "Sure, inflation dilutes purchasing power, but what if we use the new money to fund ventures that benefit society? Then it's not really theft — it's investment on behalf of everyone."
This argument is wrong on every level. Let's dismantle it completely.
The Subjective Value Problem
The advocate claims central planners can identify "beneficial ventures" and fund them through inflation. But this immediately runs into an insurmountable problem: value is subjective.
THE VALUE PROBLEM
─────────────────────────────────────────────────────────────────
Central planner says: "This watermill will benefit everyone!"
But:
- Alice doesn't need a watermill. She wanted to save for a boat.
- Bob thinks the watermill is in the wrong location.
- Carol would rather have a fishing pier.
- Dave thinks watermills are inefficient.
Who is RIGHT? There's no objective answer.
Value exists only in individual minds.
There is no "social utility" floating in the ether.
On what grounds does the central planner decide the watermill is "beneficial"? Whatever criteria they use — jobs created, estimated output, expert opinion — it's ultimately their value judgment imposed on everyone else.
Proof by Contradiction
Here's a formal proof that central planners cannot determine "beneficial" ventures:
PROOF BY CONTRADICTION
─────────────────────────────────────────────────────────────────
1. ASSUME: Central planners CAN objectively determine
which ventures benefit society.
2. This means there exists some objective measure of
"social benefit" that applies to all individuals.
3. But if such objective value exists, there should be
NO disagreement about which ventures are beneficial.
4. OBSERVATION: We ARE disagreeing right now about whether
inflation-funded ventures are beneficial.
5. The inflation advocate believes they are beneficial.
The Austrian believes they are harmful.
6. This disagreement PROVES value is subjective —
there is no objective measure we both access.
7. CONTRADICTION: If value were objective, we couldn't
disagree. But we do disagree. Therefore value is subjective.
8. CONCLUSION: Central planners CANNOT objectively determine
beneficial ventures. Any choice is arbitrary imposition
of their subjective preferences on others.
QED.
The very existence of this debate is proof that the utilitarian premise fails. If "social benefit" were objective and measurable, we wouldn't be arguing.
Theft Doesn't Become Investment Through Good Intentions
Even if we granted that a venture would benefit society (which we can't determine), that doesn't transform theft into investment.
THE CONSENT PROBLEM
─────────────────────────────────────────────────────────────────
Scenario A: Voluntary Investment
- 10 villagers each have 3 coins
- Entrepreneur says: "I want to build a watermill. Invest?"
- 5 villagers invest 1 coin each (5 coins total)
- 5 villagers decline — they keep their 3 coins
- Watermill is built with 5 coins from willing investors
RESULT: Investors took a risk they chose.
Non-investors are unaffected.
Purchasing power of non-investors: UNCHANGED.
Scenario B: Inflation-Funded Venture
- 10 villagers each have 3 coins (30 coins total)
- Chief prints 5 coins, gives to entrepreneur
- Entrepreneur builds watermill
- Now 35 coins exist, same goods
- Each villager's 3 coins now worth less
RESULT: Everyone was forced to "invest" via dilution.
Non-consenters lost purchasing power anyway.
Purchasing power of everyone: REDUCED.
In Scenario A, each person chose whether to participate. In Scenario B, everyone was forced to participate through the back door of currency debasement. The watermill might be identical in both cases — but the ethics are opposite.
The Home Intruder Analogy
Imagine someone breaks into your home, takes all your food from the fridge, and cooks it into dishes you don't particularly like. When you come home, they say: "I made you dinner! You're welcome."
Do you:
- A) Thank them for their service?
- B) Call the police?
THE INTRUDER'S LOGIC
─────────────────────────────────────────────────────────────────
Intruder: "I used YOUR resources to create something
that benefits YOU. Therefore it's not theft."
You: "I didn't ask for this. I didn't consent.
I would have used those resources differently.
The fact that I might eat some of it to avoid
total waste doesn't mean I approved of your actions."
The intruder's "benefit" is:
1. Defined by HIM, not you
2. Created from YOUR resources without consent
3. Not what you would have chosen
4. Imposed on you regardless of your preferences
Now suppose you eat some of the food rather than let it go to waste entirely. Does eating it mean you retroactively consented to the break-in? Obviously not. You're simply making the best of a bad situation — engaging in restitution, trying to recover some value from what was taken.
The same applies to inflation-funded ventures. If the government prints money to build a road, and you drive on that road, that doesn't mean you consented to the inflation. You're simply using what exists to recover some of the value that was extracted from you. It's not endorsement — it's damage control.
The Alternative: Voluntary Investment
The inflation advocate acts as if counterfeiting is the only way to fund new ventures. This is absurdly false.
HOW VENTURES ARE FUNDED WITHOUT INFLATION
─────────────────────────────────────────────────────────────────
Fixed Money Supply (10 coins total, 30 chickens):
Entrepreneur: "I have an idea for a fishing net factory.
I need 4 coins to start. Who will invest?"
Investor A: "I believe in this. Here's 2 coins."
Investor B: "Me too. Here's 2 coins."
Factory is built with 4 coins.
What happened to purchasing power?
- Investors: Traded 4 coins for equity in factory
- Non-investors: Still have their coins
- Total coins: Still 10
- Total goods: Still 30 (plus future nets)
- Price level: UNCHANGED
The investors PUT THEIR MONEY where their mouth is.
They did NOT put OTHER PEOPLE'S MONEY where their mouth is.
In a fixed money supply, the entrepreneur must convince others that the venture is worthwhile. They must do proof of work — business plans, demonstrations, track records. The investors must genuinely believe in the project enough to risk their own resources.
This is selection pressure for good ideas. Bad ideas don't get funded because no one voluntarily risks their savings on them.
Inflation Destroys This Selection Mechanism
With inflation-funded ventures, this selection pressure disappears:
WHY INFLATION FUNDS BAD VENTURES
─────────────────────────────────────────────────────────────────
Without inflation:
- Entrepreneur must convince skeptical investors
- Investors risk their OWN money
- Bad ideas don't get funded
- Failed ventures teach the market lessons
- Investors bear the losses
With inflation:
- Entrepreneur must convince central planners
- Central planners risk OTHER PEOPLE'S money
- Bad ideas get funded if politically connected
- Failed ventures get bailed out with more printing
- Everyone bears the losses through dilution
People spend their own money far more carefully than they spend other people's money. A venture capitalist putting up his own savings will scrutinize every detail. A central banker allocating printed money has no skin in the game — it cost him nothing to create those units.
The 2008 Proof: Socializing Losses
The 2008 financial crisis demonstrated exactly what happens when ventures are funded with "free" money:
THE 2008 CASE STUDY
─────────────────────────────────────────────────────────────────
SETUP:
- Banks made risky loans (mortgages to unqualified buyers)
- Why? Because they could sell risk to others
- Enabled by easy money from central bank
COLLAPSE:
- Bad loans defaulted
- Banks faced bankruptcy
WITHOUT MONEY PRINTING:
- Banks would fail
- Shareholders and bondholders lose
- Depositors lose (up to insurance limits)
- Market learns: "Don't make stupid loans"
- Other banks tighten lending standards
- Economy restructures around reality
WITH MONEY PRINTING (WHAT ACTUALLY HAPPENED):
- Central bank prints money for bailouts
- Banks survive despite catastrophic decisions
- Shareholders protected, executives get bonuses
- Everyone's purchasing power diluted to pay for it
- Market learns: "Make risky bets — heads I win, tails you lose"
- Moral hazard intensifies
The bailouts were funded by inflation — by diluting everyone's purchasing power to cover the losses of those who made terrible decisions. This is socializing losses while privatizing gains.
The Gambling Neighbor
Imagine your neighbor is a gambling addict. He goes to the casino and loses everything. Now he can't pay rent.
Under voluntary charity:
- You can CHOOSE to help him
- Or you can CHOOSE not to
- Your choice reflects YOUR values
- You bear consequences of YOUR decision
Under inflation logic:
- Government prints money to bail him out
- Your purchasing power is diluted to pay for it
- You had no choice in the matter
- Your values are irrelevant
- You bear consequences of HIS decision
THE GAMBLING NEIGHBOR
─────────────────────────────────────────────────────────────────
Neighbor: "I gambled and lost. I need 5 coins."
Voluntary world:
- You: "No." (You keep your coins)
- He: Faces consequences, learns lesson
- You: Unaffected
Inflation world:
- Chief prints 5 coins for neighbor
- Your 3 coins now worth less
- You: "Wait, why am I paying for his gambling?"
- Chief: "It benefits society to keep him housed."
- You: "According to whom? I didn't agree to this."
- He: No consequences, no lesson learned
- You: Poorer through no fault of your own
Why should you be forced to subsidize decisions you had no part in making? The inflation advocate has no answer except "because we decided it's good for society" — which circles back to the subjective value problem.
Fixed Money Supply: Clean Incentives
Under a fixed money supply, the incentive structure is clean:
FIXED MONEY SUPPLY INCENTIVES
─────────────────────────────────────────────────────────────────
For Entrepreneurs:
- Must convince voluntary investors
- Must demonstrate viability
- Bears risk of failure
- Reaps rewards of success
For Investors:
- Risk only what they choose to risk
- Due diligence is rewarded
- Bad judgment costs THEM, not others
- Learn from failures
For Non-Investors:
- Completely unaffected by others' ventures
- Purchasing power preserved
- Can save safely
- Not forced into risks they didn't choose
For Failed Ventures:
- Capital lost by those who chose to risk it
- Market learns what doesn't work
- Resources freed for better uses
- No bailout, no moral hazard
Compare to the inflation-funded world:
INFLATION-FUNDED INCENTIVES
─────────────────────────────────────────────────────────────────
For Entrepreneurs:
- Must convince central planners (political game)
- Connections matter more than viability
- Risk is diffused to everyone
- Rewards remain concentrated
For "Investors" (Central Planners):
- Risk OTHER PEOPLE'S money
- No personal downside to bad decisions
- Political considerations dominate
- Bad judgment costs everyone ELSE
For Everyone Else:
- Forced to "invest" via dilution
- Purchasing power constantly eroded
- Cannot save safely (money loses value)
- Bears risk of ventures they never chose
For Failed Ventures:
- Print more money to bail out
- Market learns nothing
- Bad ventures persist as zombies
- Moral hazard maximized
The Utilitarian Calculation Is Impossible
Even if we accepted utilitarian ethics (which has its own problems), the calculation the inflation advocate proposes is impossible:
WHY THE UTILITARIAN CALCULATION FAILS
─────────────────────────────────────────────────────────────────
To determine if a venture "benefits society," you'd need:
1. A way to measure each person's utility gained
→ Impossible: utility is subjective and non-comparable
2. A way to measure each person's utility lost (from dilution)
→ Impossible: same reason
3. A way to aggregate these into "net social benefit"
→ Impossible: no common unit exists
4. A way to predict the venture's outcomes
→ Impossible: entrepreneurship is uncertain by nature
5. A way to compare to counterfactual (what would have happened)
→ Impossible: we can't observe paths not taken
The "beneficial venture" calculation requires FIVE impossible steps.
The inflation advocate waves their hand at "economic study" determining which ventures to fund. But there is no study that can solve the Economic Calculation Problem. The information needed simply does not exist in accessible form.
Summary: The Utilitarian Defense Fails
THE UTILITARIAN ARGUMENT: SUMMARY OF FAILURES
─────────────────────────────────────────────────────────────────
Claim: "Inflation funds beneficial ventures, so it's okay."
FAILS because:
1. VALUE IS SUBJECTIVE
→ No objective "social benefit" exists
→ Our disagreement proves this
2. THEFT IS STILL THEFT
→ Good intentions don't transform theft into investment
→ Consent was never given
3. USING THE OUTPUT ≠ CONSENTING TO THE THEFT
→ Eating the intruder's food isn't endorsement
→ It's damage control / restitution
4. VOLUNTARY ALTERNATIVES EXIST
→ Ventures can be funded through willing investors
→ Who put THEIR money where THEIR mouth is
5. INFLATION DESTROYS SELECTION PRESSURE
→ Bad ideas get funded (political connections)
→ Failures get bailed out (moral hazard)
→ Market learns nothing
6. SOCIALIZES LOSSES, PRIVATIZES GAINS
→ 2008 proved this catastrophically
→ Everyone pays for the connected few's mistakes
7. THE CALCULATION IS IMPOSSIBLE
→ Can't measure subjective utility
→ Can't predict outcomes
→ Can't compare counterfactuals
The utilitarian defense of inflation is not merely wrong —
it's incoherent. It assumes away every problem it claims to solve.
The Hard Assets Contradiction
Here's a question for every inflation advocate:
If inflation is good for the economy, why do you invest in hard assets?
THE INFLATION ADVOCATE'S PORTFOLIO
─────────────────────────────────────────────────────────────────
What they SAY: "2-3% inflation is healthy and necessary"
What they DO: - Buy real estate (inflation hedge)
- Buy gold (inflation hedge)
- Buy stocks (inflation hedge)
- Avoid holding cash
CONTRADICTION:
If inflation is GOOD, holding cash should be FINE.
If you hedge against inflation, you admit it's BAD.
You cannot simultaneously believe:
- "Inflation benefits society"
- "I must protect MY wealth from inflation"
If you're protecting yourself, you're admitting inflation destroys wealth. And if you're protecting yourself while advocating inflation for others, you're saying: "Inflation is good for you, not for me."
Who Are the Poor Suckers?
For inflation to "work," someone must hold the depreciating currency. Who?
THE INFLATION GAME
─────────────────────────────────────────────────────────────────
Winners (hedge against inflation):
- The wealthy (real estate, stocks, gold)
- The connected (first receivers of new money)
- The financially sophisticated
Losers (hold depreciating currency):
- The poor (can't afford hard assets)
- The unsophisticated (don't understand inflation)
- Fixed-income retirees (pensions in fiat)
- Workers (wages lag behind prices)
INFLATION IS REGRESSIVE.
It transfers wealth from poor to rich,
from unsophisticated to sophisticated,
from workers to asset owners.
The inflation advocate who owns real estate is saying: "Let the poor hold the bag." Their inflation-hedged portfolio is funded by the purchasing power extracted from those who can't afford to hedge.
The "Optimal Rate" Delusion
Your opponent retreats to: "Okay, maybe uncontrolled inflation is bad, but surely there's some optimal rate..."
This position is untenable:
1. Heterogeneity Destroys "Optimal"
If the "optimal" rate is 5% per year:
IMPACT BY WEALTH LEVEL
─────────────────────────────────────────────────────────────────
Person A: 100 coins saved → loses 5 coins/year
Person B: 1,000 coins saved → loses 50 coins/year
Person C: 10,000 coins saved → loses 500 coins/year
To merely PRESERVE wealth, each must earn >5% returns.
Person A: Needs 5 coin return (easy)
Person B: Needs 50 coin return (harder)
Person C: Needs 500 coin return (requires sophisticated investing)
After 20 years at 5% inflation:
10,000 coins → purchasing power of ~3,600 coins (64% GONE)
You're telling the productive class:
"Find ways to beat inflation or watch your savings evaporate."
There is no rate that affects everyone equally because people have different amounts of savings, different abilities to invest, and different time horizons. Any positive inflation rate systematically punishes those who save and rewards those who borrow.
2. The Knowledge Problem
To determine an "optimal" rate, the central planner would need to know:
- Every individual's time preference
- Every possible investment opportunity
- Every future innovation
- Every shifting consumer desire
- Every supply chain disruption
- Every productivity gain
This information exists only as dispersed knowledge in millions of minds, revealed only through voluntary exchange. No committee can access it.
3. Who Holds the Bag?
As inflation continues, rational actors flee to hard assets. Eventually:
THE END GAME
─────────────────────────────────────────────────────────────────
Phase 1: "Optimal" 2% inflation. Most people hold cash.
Wealth transfer: slow but steady.
Phase 2: Sophisticated flee to hard assets.
Remaining cash holders bear MORE of the burden.
Phase 3: More flee. Burden concentrates further.
Phase 4: Only the poor/unsophisticated hold cash.
Inflation's damage falls entirely on them.
Phase 5: Even the poor realize. Currency collapse.
See: Argentina, Zimbabwe, Venezuela.
There's no stable equilibrium.
The game requires suckers, and suckers eventually learn.
Hyperinflation isn't a bug — it's the logical endpoint of any positive inflation rate continued long enough. The only question is how quickly people learn they're being robbed.
Deflation Is the Natural State of Progress
Consider what happens in an uninflated economy:
NATURAL DEFLATION (CAPITALISM WORKING)
─────────────────────────────────────────────────────────────────
Year 1: 10 coins exist, 30 chickens produced
Price: 1 coin = 3 chickens
Year 5: 10 coins still (no inflation)
Farmer improved techniques: 60 chickens now
Competition: 1 coin = 6 chickens
Year 10: 10 coins still
Even better techniques: 120 chickens
Price: 1 coin = 12 chickens
YOUR SAVINGS:
Year 1: 1 coin buys 3 chickens
Year 5: 1 coin buys 6 chickens
Year 10: 1 coin buys 12 chickens
REWARD FOR SAVING: Your purchasing power GROWS.
REWARD FOR PRODUCING: Profits from efficiency gains.
This is what we observe with technology. Computing power gets cheaper every year. That's not a problem — it's the market working correctly. If we had a fixed money supply, everything would get cheaper as productivity improved.
The reason necessities (housing, healthcare, education) get more expensive while luxuries (electronics, entertainment) get cheaper is that the former are heavily regulated and subsidized (inflation + intervention) while the latter face actual market competition.
The Fiat Illusion: "Number Go Up" = Progress?
Under the fiat debt-based system, we're conditioned to believe:
- Prices should rise forever
- Wages should rise forever
- If numbers don't go up, we're getting poorer
- Growth = nominal increases
This is backwards. Real progress means prices FALL while living standards RISE.
The Calculator Proof
THE CALCULATOR'S JOURNEY
─────────────────────────────────────────────────────────────────
1970s: Scientific calculator = $400 (a week's wages)
→ Society was "rich" by fiat logic
1990s: Scientific calculator = $20
→ Did society get poorer? No.
2010s: Calculator app = $0.99
→ Did society get poorer? No.
2020s: Calculator app = FREE
→ Society "poorest" by fiat logic?
REALITY: Society got RICHER.
The same function costs NOTHING.
Resources freed for other uses.
Everyone has access, not just the wealthy.
By fiat logic, we should see calculator prices rise forever. Instead, they fell to zero. Did this impoverish calculator manufacturers? No — they moved on to produce other things. Did it impoverish society? Absolutely not — it enriched everyone.
This is what ALL prices should do under sound money. Productivity gains should be passed to consumers as lower prices, not captured by money printers as inflation.
Why Technology Gets Cheaper But Necessities Don't
WHAT GETS CHEAPER WHAT GETS MORE EXPENSIVE
─────────────────────────────────────────────────────────────────
Computers Housing
Phones Healthcare
TVs Education
Calculators Childcare
Entertainment Food
Software Energy
Appliances Insurance
WHAT'S THE DIFFERENCE?
Cheaper things: Expensive things:
- Mostly free market - Heavy govt intervention
- Global competition - Local monopolies/cartels
- Minimal regulation - Massive regulation
- No govt subsidies - Subsidized demand
- Far from central bank - Close to central bank
- Innovation rewarded - Compliance rewarded
The sectors closest to government — healthcare, education, housing — show the worst price inflation. The sectors furthest from government — technology, consumer electronics — show consistent deflation.
This isn't coincidence. Proximity to the money printer determines whether productivity gains go to consumers or get captured by the connected.
The Housing Catastrophe
The clearest proof that fiat has failed is housing:
HOUSING: THEN VS NOW
─────────────────────────────────────────────────────────────────
1970 (Before full fiat):
- Median home: $23,000
- Median income: $9,870
- Home/Income ratio: 2.3x
- Single income supported family
- 15-year mortgages common
- Mortgage paid off by 40
2024 (Full fiat):
- Median home: $420,000
- Median income: $74,580
- Home/Income ratio: 5.6x
- Dual income required
- 30-year mortgages standard
- Mortgage paid off at 60+
QUESTION: Is this progress?
How can someone work harder than their parents, be more productive than their parents, have more technology than their parents — yet struggle to afford what their parents bought easily?
This is not progress. This is theft across generations.
The Productivity-Wage Gap
THE GREAT DIVERGENCE (1971-Present)
─────────────────────────────────────────────────────────────────
Productivity Real Wages
(Output/Hour) (Purchasing Power)
─────────────────────────────────────────────────────────────────
1971: 100 100 (Indexed baseline)
1980: 115 98
1990: 140 95
2000: 175 100
2010: 210 98
2020: 250 102
Productivity up 150%
Real wages flat
WHERE DID THE GAINS GO?
→ To those closest to the money printer
→ Cantillon Effect in action
→ Workers produce more, keep the same
→ Asset owners capture the difference
Before 1971 (Nixon Shock), productivity gains translated to wage gains. After 1971, the link broke. Workers became dramatically more productive, but their purchasing power stagnated.
The difference was captured through inflation by those nearest the money printer.
The Historical Proof: 1870-1913
The inflation advocate claims deflation is catastrophic. History says otherwise:
THE GREAT DEFLATION (1870-1913)
─────────────────────────────────────────────────────────────────
Monetary system: Gold standard
Price trend: FALLING (mild deflation)
Economic result: GREATEST GROWTH IN HISTORY
What happened:
- Prices fell ~1-2% per year
- Wages rose in REAL terms
- Living standards exploded
- Innovation flourished
- Middle class emerged
- No central bank (until 1913)
Specific examples:
- Rail transport cost: DOWN 90%
- Steel price: DOWN 80%
- Lighting cost: DOWN 95%
- Food prices: DOWN 50%
Did people stop buying because prices fell?
NO. They bought MORE because they could AFFORD more.
Did businesses fail because prices fell?
NO. Costs fell too. Margins maintained.
Efficient producers thrived.
The period of greatest American economic growth occurred during consistent deflation. The claim that "we need inflation for growth" is historically illiterate.
What Stocks Used to Be
The fiat system has perverted even the stock market:
STOCKS: THEN VS NOW
─────────────────────────────────────────────────────────────────
Pre-Fiat Era (Before 1971):
Purpose of stocks: Ownership stake in productive enterprise
Primary return: DIVIDENDS (share of profits)
Average yield: 4-6%
Price appreciation: Secondary, slow
Investor mindset: "I own part of this business"
Holding period: Years to decades
Volatility: Low
Full Fiat Era (1971-Present):
Purpose of stocks: Inflation hedge / speculation vehicle
Primary return: CAPITAL GAINS (price increase)
Average yield: 1-2%
Price appreciation: Primary, volatile
Investor mindset: "Number go up, I sell"
Holding period: Days to months
Volatility: Extreme
WHAT CHANGED?
Under sound money:
- Save in money (it holds value)
- Invest in stocks for income (dividends)
- Stocks priced on earnings/dividends
Under fiat:
- Can't save in money (it loses value)
- MUST invest just to preserve wealth
- Stocks become savings vehicle
- Prices driven by money fleeing inflation
- Speculation replaces investment
- "Investing" becomes gambling
People don't invest in stocks because it's a great opportunity — they invest because holding cash guarantees loss. This forces everyone into speculation, inflating asset bubbles and creating volatility.
Houses as Investment Vehicles
The same perversion happened to housing:
HOUSING PURPOSE: THEN VS NOW
─────────────────────────────────────────────────────────────────
Original purpose: CONSUMER GOOD
- Place to live
- Shelter for family
- Depreciating asset (requires maintenance)
- Bought when needed, sold when not
Fiat purpose: INVESTMENT VEHICLE
- Inflation hedge
- "Building equity"
- "Your biggest investment"
- Speculative asset
- Bought as early as possible
- Never sold if avoidable
THE PERVERSE CYCLE:
1. Fiat money loses value
2. People flee to "hard assets" (houses)
3. Demand for houses as investment rises
4. House prices rise
5. Houses become "good investment"
6. More people buy houses as investment
7. Prices rise further
8. Houses unaffordable for actual living
9. GOTO 1
This is a SELF-FULFILLING PROPHECY created by fiat.
Houses aren't naturally an investment.
They're shelter that requires constant maintenance.
Only inflation makes them "appreciate."
Rich people aren't buying houses because they're greedy — they're buying because it's rational under fiat. Hold cash? Lose 5% per year. Buy houses? At least maintain purchasing power.
The result: housing transforms from consumer good to investment vehicle, pricing out those who just want somewhere to live.
The Generational Theft
GENERATIONAL COMPARISON
─────────────────────────────────────────────────────────────────
1960s FAMILY:
- Single income (father works)
- Mother stays home with children
- Own home (15-year mortgage)
- Own car (paid cash)
- Annual vacation
- Retire at 60 with pension
- Leave inheritance to children
2020s FAMILY:
- Dual income (both parents work)
- Children in daycare ($$$)
- Rent or 30-year mortgage
- Car loans
- "Staycations"
- Retire at 67... maybe
- Leave debt to children
MORE PRODUCTIVE: Yes (2.5x)
MORE EDUCATED: Yes
MORE HOURS WORKED: Yes (2 incomes vs 1)
BETTER OFF: NO
This is not progress. This is regression.
Fiat has stolen the productivity gains
of three generations.
The inflation advocate must explain: If inflation is good, why does each generation work harder for less? Why do two incomes struggle where one succeeded? Why do 30-year mortgages replace 15-year mortgages?
Fiat doesn't create growth. It creates the illusion of growth while extracting real wealth.
Bitcoin: The Sound Money Solution
The inflation advocate might concede that fiat is problematic but argue: "Bitcoin mining is also inflation! New coins are created!"
This fundamentally misunderstands both Bitcoin and what makes inflation harmful.
Mining Is Not Inflation
FIAT "CREATION" BITCOIN MINING
─────────────────────────────────────────────────────────────────
How created: How created:
- Keystroke on computer - Expenditure of real energy
- Costs nothing - Costs electricity, hardware
- No work required - Proof of Work required
Who decides amount: Who decides amount:
- Central bankers - The code (consensus rules)
- Can change anytime - Cannot change without consensus
- Political process - Mathematical process
Who knows the rules: Who knows the rules:
- Insiders - Everyone (open source)
- Rules change without notice - Rules known from day one
- No consent required - Consent via participation
Supply schedule: Supply schedule:
- Unlimited - 21 million maximum
- Determined by politics - Determined by code
- Unpredictable - Perfectly predictable
CRITICAL DIFFERENCE:
Fiat: Someone TAKES purchasing power from you
Bitcoin: Known emission schedule, priced in from start
Bitcoin Is Backed by Energy
Gold became money because acquiring it requires real work — prospecting, mining, refining. This work is the "backing."
Bitcoin works the same way:
GOLD BACKING BITCOIN BACKING
─────────────────────────────────────────────────────────────────
Must find deposits Must solve cryptographic puzzle
Must extract ore Must expend electricity
Must refine metal Must run specialized hardware
Energy + Labor = Gold Energy + Hardware = Bitcoin
Both are PROOF OF WORK.
Neither can be created from nothing.
Both represent stored energy.
When someone "mines" a Bitcoin, they haven't created value from nothing — they've transformed energy into a monetary unit. The energy expenditure IS the backing.
Fiat has no such backing. A keystroke creates a trillion dollars. No energy expended, no work performed, no value created.
Consensus Rules Everything
The key difference between Bitcoin's emission and fiat inflation:
FIAT RULE CHANGES BITCOIN RULE CHANGES
─────────────────────────────────────────────────────────────────
Who decides: Who decides:
- Central bank committee - Network consensus
- 12 people in a room - Millions of participants
- Behind closed doors - Open, transparent process
How changes happen: How changes happen:
- Announcement after decision - Proposal, debate, testing
- Implemented immediately - Only if consensus reached
- No opt-out - Can refuse (fork or leave)
Your consent: Your consent:
- Not required - Required (you run the code)
- Not asked - You choose which rules
- No exit possible - Can exit anytime
Historical changes: Historical changes:
- Constant (every Fed meeting) - Minimal (by design)
- Always toward more printing - Resistant to any change
- "Emergency" justifies all - Security > features
Every Bitcoin participant knows:
- Total supply: 21 million, forever
- Emission schedule: Halving every ~4 years
- Current block reward: Known precisely
- Future block reward: Known precisely
No surprises. No emergency meetings. No "temporary" measures that become permanent. No one can change the rules without convincing the entire network.
The Halving Schedule
Bitcoin's emission follows a predictable, declining schedule:
BITCOIN EMISSION SCHEDULE
─────────────────────────────────────────────────────────────────
2009-2012: 50 BTC per block (10.5M total)
2012-2016: 25 BTC per block (15.75M total)
2016-2020: 12.5 BTC per block (18.375M total)
2020-2024: 6.25 BTC per block (19.6875M total)
2024-2028: 3.125 BTC per block (~20.34M total)
...
~2140: 0 BTC per block (21M total, forever)
Key properties:
- Asymptotically approaches 21M
- Never exceeds 21M
- Rate of emission DECREASES over time
- Opposite of fiat (which accelerates)
- Everyone knew this from day one
This isn't inflation — it's a known, transparent, declining emission that approaches zero. There are no surprises, no "quantitative easing," no emergency rate cuts.
Division ≠ Duplication
The advocate might say: "But what about when you need more units? Won't you have to create more Bitcoin?"
No. Bitcoin is divisible to 8 decimal places (satoshis), and further division is possible through protocol upgrade if ever needed.
DIVISION VS DUPLICATION
─────────────────────────────────────────────────────────────────
1 BTC = 100,000,000 satoshis
This is like saying:
1 dollar = 100 cents
Does dividing a dollar into cents CREATE money?
No. It represents smaller units of the same value.
Does dividing Bitcoin into satoshis CREATE money?
No. It represents smaller units of the same value.
TOTAL SUPPLY IS UNCHANGED.
Only the unit of account changes.
If needed:
- Protocol can enable millisatoshis
- Or microsatoshis
- Or any division required
- WITHOUT creating new supply
- WITHOUT diluting existing holders
As we explained earlier: going from 1 coin to 10 coins at the START is just establishing divisions. Going from 10 coins to 15 coins AFTER prices form is theft.
Bitcoin can always subdivide. It can never duplicate.
Why the Market Chose Bitcoin
Bitcoin wasn't imposed by any government. It emerged from voluntary adoption:
BITCOIN'S VOLUNTARY ADOPTION
─────────────────────────────────────────────────────────────────
No legal tender laws forcing acceptance
No government backing
No military enforcement
No taxation requiring its use
No monopoly on issuance
Yet:
- $1+ trillion market cap
- Millions of users worldwide
- Adopted by nations (El Salvador)
- Held by corporations (MicroStrategy, Tesla)
- 15+ years of continuous operation
- Never hacked, never debased
WHY?
Because it solves real problems:
- Store of value across time
- Transfer value across space
- No permission needed
- No counterparty risk
- No debasement risk
- Verifiable scarcity
People chose Bitcoin because it offers something fiat cannot: certainty. Certainty about supply, about rules, about ownership.
Bitcoin Optimizes for the Right Things
WHAT BITCOIN OPTIMIZES FOR
─────────────────────────────────────────────────────────────────
SECURITY: Most secure network in human history
$700B+ securing the network
Never successfully attacked
SCARCITY: 21 million, forever
Mathematically guaranteed
No exceptions, no emergencies
DECENTRALIZATION: No single point of control
No CEO, no board, no government
Thousands of nodes worldwide
WHAT BITCOIN DOES NOT OPTIMIZE FOR:
Speed: ~10 minute blocks (by design)
Security > speed
Throughput: ~7 transactions/second base layer
Layers can add speed (Lightning)
Security > throughput
Flexibility: Hard to change (by design)
Stability > features
Predictability > adaptability
The advocate might criticize Bitcoin for being "slow" or "inflexible." These are features, not bugs. Bitcoin prioritizes the properties that make money sound: scarcity, security, predictability.
Speed can be added in layers. Scarcity cannot be added after the fact.
The Verdict on Bitcoin
BITCOIN VS FIAT: FINAL COMPARISON
─────────────────────────────────────────────────────────────────
FIAT BITCOIN
─────────────────────────────────────────────────────────────────
Supply: Unlimited 21 million
Creation: Keystroke Energy expenditure
Rules: Change constantly Fixed in code
Consent: Not required Required (run code)
Transparency: Opaque Open source
Predictability: None Perfect
Backing: Government force Proof of work
Seizability: Easy Very difficult
Censorship: Easy Very difficult
Inflation: Guaranteed Impossible (post-2140)
Trust required: In institutions In mathematics
Historical record: 100% failure rate 15 years, no failure
─────────────────────────────────────────────────────────────────
Bitcoin isn't perfect. But it solves the fundamental problem of money: it cannot be arbitrarily debased by any authority.
That alone makes it superior to every fiat currency in existence.
The Verdict
Inflation is:
- Fraud — it only works when producers don't know they're being robbed
- Theft — it extracts value from money holders and transfers it to money printers
- Regressive — it harms the poor and unsophisticated most
- Production-killing — theft always reduces the incentive to produce
- Impossible to optimize — there is no "right amount" of robbery
- Self-defeating — advocates protect themselves while recommending it for others
- A stolen concept — it presupposes the productive order it undermines
There is no version of monetary inflation that benefits society. The only beneficiaries are those closest to the money printer. Everyone else pays.
The solution is Sound Money — whether gold, Bitcoin, or any money whose supply cannot be arbitrarily expanded by political actors. Under sound money, capitalism does what it does best: makes everything better and cheaper over time.
Inflation isn't a tool for growth. It's a mechanism for theft dressed up in economic jargon.
See also: Austrian Economics, Economic Calculation Problem, Fiat Currency, The Failure of Keynesian Economics, Taxation, [[Cantillon Effect]]