“Inflation” is defined in the dictionary as “undue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie” (Random House Dictionary). It is interesting to note that the word “inflated” is defined as “distended with air or gas; swollen.”

This last is not a coincidence: in regard to social issues, “inflation” does not mean growth, enlargement or expansion, it means an “undue”—or improper or fraudulent—expansion. The expansion of a country’s currency (which, incidentally, cannot be perpetrated by private citizens, only by the government) consists in palming off, as values, a stream of paper backed by nothing but promises (or hot air) and getting actual values, the citizens’ goods or services, in return—until the country’s wealth is drained. A similar activity, in private performance, is the passing of checks on a non-existent bank account. But, in private performance, this is regarded as a crime—and most people understand why such an activity cannot last for long.

Today, people are beginning to understand that the government’s account is overdrawn, that a piece of paper is not the equivalent of a gold coin, or an automobile, or a loaf of bread—and that if you attempt to falsify monetary values, you do not achieve abundance, you merely debase the currency and go bankrupt.

Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments.

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.

There is only one institution that can arrogate to itself the power legally to trade by means of rubber checks: the government. And it is the only institution that can mortgage your future without your knowledge or consent: government securities (and paper money) are promissory notes on future tax receipts, i.e., on your future production.

The “wage-price spiral,” which is merely a consequence of inflation, is being blamed as its cause, thus deflecting the blame from the real culprit: the government. But the government’s guilt is hidden by the esoteric intricacies of the national budget and of international finance—which the public cannot be expected to understand—while the disaster of nationwide strikes is directly perceivable by everyone and gives plausibility to the public’s growing resentment of labor unions.

You have heard economists say that they are puzzled by the nature of today’s problem: they are unable to understand why inflation is accompanied by recession—which is contrary to their Keynesian doctrines; and they have coined a ridiculous name for it: “stagflation.” Their theories ignore the fact that money can function only so long as it represents actual goods—and that at a certain stage of inflating the money supply, the government begins to consume a nation’s investment capital, thus making production impossible.

Copyright © 1986 by Harry Binswanger. Introduction copyright © 1986 by Leonard Peikoff. All rights reserved. For information address New American Library.


Excerpts from The Ominous Parallels, by Leonard Peikoff. Copyright © 1982 by Leonard Peikoff. Reprinted with permission of Stein and Day Publishers. Excerpts from The Romantic Manifesto, by Ayn Rand. Copyright © 1971, by The Objectivist. Reprinted with permission of Harper & Row, Publishers, Inc. Excerpts from Atlas Shrugged, copyright © 1957 by Ayn Rand, The Fountainhead, copyright © 1943 by Ayn Rand, and For the New Intellectual, copyright © 1961 by Ayn Rand. Reprinted by permission of the Estate of Ayn Rand. Excerpts from Philosophy: Who Needs It, by Ayn Rand. Copyright © 1982 by Leonard Peikoff, Executor, Estate of Ayn Rand. Reprinted by permission of the Estate of Ayn Rand. Excerpts from “The Philosophy of Objectivism” lecture series. Copyright © 1976 by Leonard Peikoff. Reprinted by permission. Excerpts from Alvin Toffler’s interview with Ayn Rand, which first appeared in Playboy magazine. Copyright © 1964. Reprinted by permission of Alvin Toffler. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Plume, a member of Penguin Group (USA), Inc.