In 262 AD, plans were being put in place to celebrate the “decennalia” (10 years on the throne) of Roman emperor Gallienus. The following excerpt from the fourth book in Harry Sidebottom’s “Warrior of Rome” series is part of a discussion between Gallienus and his senior advisors regarding how an appropriately-grandiose “decennalia” would be funded:
“The a Rationibus, in charge of the finances of the imperium, did not hesitate. “Celebrating your maiestas is without price and, as you know, Dominus, plans are in place to debase the precious metal in the coinage again. It will be a few months before the merchants catch up.””
In the end Gallienus decides to pay for the celebrations using direct theft (by confiscating and then selling the estates of his enemies and those of their families), but the final sentence of the above excerpt from a work of historical fiction reveals more knowledge of how monetary inflation works than is found in the writings of most Keynesian economists.
Regardless of whether it is implemented via an emperor surreptitiously reducing the precious-metal content of the coinage or by the banking system (the central bank and the commercial banks) creating new currency deposits out of nothing, monetary inflation is a method of forcibly transferring wealth from the rest of the economy to the first users of the new or debased money. In other words, it is a form of theft.
It has always been popular and it has nearly always been effective in the short term because it takes time — potentially a long time — for the people who are having their wealth siphoned away by the inflation to figure out what’s going on. For example, in ancient Rome it took the merchants a few months to catch up following a round of coinage debasement, meaning that it took a few months for prices to adjust to the reduced value of the money. These days it takes much longer, because there is no observable difference between the currency units that are being issued today and the ones that were issued in the past. In fact, these days most people never figure out why they are finding it increasingly difficult to make ends meet.
Just to be clear, if monetary inflation caused a nearly-immediate and uniform increase in prices throughout the economy then it would never have been popular. From the perspective of the ‘inflators’ it would serve no purpose, because it would not enable a small minority to benefit at the expense of the majority. It is only popular because it boosts some prices relative to other prices, thus temporarily benefiting some parts of the economy at the expense of other parts, and because the early users of the new money get to do the bulk of their spending/investing before prices rise.
As mentioned above, these days it is not possible to directly observe the debasement of money. Also, the populace is regularly told that “inflation” is not only not a problem, there isn’t enough of it! As a consequence, knowledge of good economic theory is required to understand what’s happening to money and why slower economic progress, or even a prolonged economic contraction, will be an inevitable result.
Unfortunately, hardly anyone has this knowledge, so most people’s minds are open to the propaganda that central banks are providing genuine support to the economy and that a more interventionist government could help make things better.
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