You can run, but you can’t hide: inflation is here to stay. It has always been present for people in the so-called Global South, but nowadays, everybody and their mother seems to be feeling it. The world is more interconnected than ever. The situation is dire everywhere. Government systems, economic strategies, and political leanings vary, but inflation persists.
Whenever someone investigates a crime, it’s recommended to ask “cui bono?” or “who benefits?” Inflation and the consequential debasement could be considered a hidden tax, and its beneficiaries are clear: the rich and those closest to the money printer. Not to mention the government in power, which gets to finance its expensive projects without directly taxing its constituency.
Even Milton Friedman agrees. The economist behind monetarism, a monetary policy that advocates for the government to have strict control of the monetary base, once said:
“Inflation is the one form of taxation that can be imposed without legislation.”
Let’s explain how this all works and how the beneficiaries get their cut without anyone noticing.
It’s as simple as that: political leanings aside, governments can’t keep their hands out of the cookie jar. Not one of them can resist inflation’s allure. Taxes are never enough to finance their extravagant spending, and they have to keep throwing money around to win votes, so there comes a point at which they basically have no choice but to turn to the money printer.
In the classic text “The Bitcoin Standard”, Saifedean Ammous wrote:
“History has shown that governments will inevitably succumb to the temptation of inflating the money supply. Whether it's because of downright graft, “national emergency,” or an infestation of inflationist schools of economics, government will always find a reason and a way to print more money, expanding government power while reducing the wealth of the currency holders.”
As newly printed money enters the economy, each unit already in circulation loses purchasing power, and inevitably, prices increase. Effectively, every person holding the government’s currency ends up paying for their spending. The magic trick here is that the general population is blind to this. Their tax forms show clearly the percentage of their salary that ends up in the government’s pocket. On the other hand, for the untrained eye, inflation is an invisible force.
The impact of new money entering the economy reverberates through time and causes the famous boom and bust cycle. Inflation of the money supply usually comes with a decrease in interest rates, which signals to businessmen it’s time to borrow and invest. This is initially perceived as a positive development for the economy, and those closest to the money supply do receive the best deals and benefit greatly. Everybody else, though, is not that lucky.
In a recent tweet, Swan’s Cory Klippsten explained inflation’s effects in a simple way:
“Think it through. Inflationary fiat money, with central banks constantly printing and governments constantly borrowing, doesn’t “help the little guy.” It hurts them:
•The wealthy own assets (stocks, real estate, scarce collectibles).
•The poor hold wages and savings in cash.
•When the money supply inflates, the rich see their assets pump while the poor watch prices rise faster than their paychecks.
Fiat printing is not “neutral” policy. It’s a deliberate wealth transfer from workers and savers to asset holders and debtors. A hidden tax on the working class and poor.”
Inflation is so effective as a money extraction method that one might argue that, under fiat regimes, governments worldwide don’t really need to tax their citizens. Even Nayib Bukele, a politician, said so in a speech at CPAC. That’s a topic for another day, however.
How does inflation favor those closer to the money printer? In the eighteenth century, Irish-French economist Richard Cantillon explained it, in what later came to be referred to as the Cantillon Effect. Let’s go back to “The Bitcoin Standard” for a succinct explanation:
“According to Cantillon, the beneficiaries from the expansion of the money supply are the first recipients of the new money, who are able to spend it before it has caused prices to rise. Whoever receives it from them is then able to spend it facing a small increase in the price level. As the money is spent more, the price level rises, until the later recipients suffer a reduction in their real purchasing power. This is the best explanation for why inflation hurts the poorest and helps the richest in the modern economy.”
That’s just the beginning, though. The inflation of the money supply inevitably disrupts the area’s business ecosystem in more ways than one. In “Cantillon Effects: Why Inflation Helps Some and Hurts Others,” the Mises Institute explains:
“The main point of Cantillon’s broader analysis is that changes in money result in changes in relative prices, which will change production plans and result in a different pattern of fixed investment such that new money changes the real economy and results in winners and losers.”
Effectively, businesses closest to the money printer, the ones with access to government credit, have an incredibly higher probability of success than others. One could even argue that governments worldwide select the winning and losing enterprises in their territory, but that’s a topic for another day.
When hyperbitcoinization hits, the whole world will dramatically change. First of all, in an inflationary environment, there are no limits. The government can theoretically print all the money it wants. Bitcoin, on the other hand, is capped at 21 million coins. There’s no inflation because all the coins already exist, and we know exactly where they are 24/ 7. There’s a set-in-stone release schedule that will last approximately 100 years, and everyone knows exactly how the situation will play out. If there’s a rise in demand, and there probably will be many, the system can’t produce more coins.
How will that affect the economic reality of individuals? In a Bitcoin world, the free market will operate without major interference from government. There will be no money printer, so being close to government credit would not imply significant advantages. Governments would have to be efficient with their spending, as well administered parties will probably be rewarded with votes. Salaries in BTC will maintain their purchasing power at worst, or increase it at best, because deflation should be the norm in a technologically advanced society.
In an appearance on the “Millenial Investing Podcast,” Jeff Booth, one of the main proponents of the deflation concept, said:
“Our base layer of everything is moving into embedded technology. And on top of that, you’re moving into AI and robotics that change the meaning of work forever. As technology enables more and more industries you would think would be happening against that force. You would think prices would be dropping everywhere. Our time would be going up. We wouldn’t need to work as hard. That’s what you would imagine would happen if the natural forces, if that would be allowed to happen. And keep in mind. Most of the deflation, most of that natural force of technology isn’t behind us, it’s in front of us.”
There are many, many reasons Bitcoin is the best money ever created. As you go down the rabbit hole, more and more appear. The way it deactivates inflation and the obvious advantages it gives to the rich and those close to the money printer are just two of them. The way it creates the circumstances for deflation through technology to finally take hold is another. And what’s mind-blowing is, there are many more, but those are topics for another day.
The fact of the matter is that both the subtle and obvious ways inflation favors the wealthy are there by design. And the way the invisible tax affects any other individual, especially the poor, without their knowledge, is also intentional. In normal circumstances, it would be impossible to get rid of the exorbitant privilege inflation gives to governments and the ruling class. We would have to take them from their cold, dead hands.
Only Bitcoin, the most peaceful revolution that ever existed, will facilitate this transition without violence of any kind. The ruling class will accept it because Bitcoin has something for them, too. As they go down the rabbit hole, they will realize a world running on perfect money is more efficient and brings forth the characteristics needed for a more prosperous world. If the plainfield gets a little flatter and the game gets a little fairer, people will play with more gusto and give it their all.
Just like Bitcoiners do every day of their life since they discovered how deep the rabbit hole goes.
We could argue that’s Bitcoin’s main promise. Let it be so.
