This article was originally published by Marcos Giansante at The Mises Institute.
In most of the world, inflation is no longer an exception; it is the rule. Official inflation targets of 4 percent, 5 percent, or even 6 percent per year have become normalized, sold as signs of macroeconomic health. Yet these same rates quietly destroy savings, erode wages, and discourage long-term planning—especially for the poor. At just 6 percent annual inflation, the purchasing power of $100 drops to under $55 in ten years.
Figure: Real value of $100 after 10 years at 6 percent annual inflation (Source: US Inflation Calculator)
What looks like gradual change on paper is, in fact, a form of legalized expropriation. And worse: it is not a mistake, it is public policy.
Instead of rewarding prudence and savings, inflationary regimes reward haste, debt, and present consumption. The economic actor who spends immediately is “rewarded” by escaping tomorrow’s price hike. The one who saves is penalized. Over time, such incentives reshape culture itself—turning entire populations into reactive, short-term thinkers.
The Austrian School, especially Ludwig von Mises and Friedrich Hayek, warned that inflation is never neutral. Inflation distorts relative prices, misallocates capital, and induces systematic errors in investment. But beyond technical distortion, inflation also carries a deep moral hazard: it breaks the link between effort and reward, dissolving trust in the future.
The Technocratic Mirage of Managed Economies
Mainstream economics—especially in its Keynesian and statist forms—treats inflation as a manageable side effect of intervention. According to this view, governments and central banks can fine-tune aggregate demand by adjusting the money supply and public spending. When growth stalls, they simply inject more liquidity.
But this logic rests on a dangerous illusion: that a centralized authority can gather, interpret, and act upon dispersed economic knowledge better than individuals acting freely. Hayek exposed this fallacy in The Use of Knowledge in Society, arguing that no planner, however brilliant, could match the informational complexity embedded in free prices.
Despite this, inflation is increasingly treated as a “target,” not a threat. As Hélio Beltrão—president of the Mises Institute Brazil—has pointed out, this rhetorical inversion has become one of the great manipulations of modern policy.
The result is a cycle of self-justifying coercion: the state inflates, triggers the very instability it claims to solve, and then inflates again to paper over its failures. Each round dilutes the value of money, punishes savers, and transfers purchasing power to debtors, governments, and politically connected groups.
The Entrepreneurial State: Myth and Mechanism
Much of the justification for inflationary policy lies in the myth of the “entrepreneurial state”—a term popularized by economist Mariana Mazzucato. In this vision, governments are not merely regulators or referees, but bold investors and innovators, leading economic development.
The idea is seductive. Who wouldn’t want a wise and benevolent state allocating capital to vital sectors, stimulating demand, and ensuring justice? But, as Thomas Sowell warned in The Vision of the Anointed, such fantasies of managerial omniscience often hide the blunt reality of bureaucratic self-interest, political favoritism, and misaligned incentives.
Public policies—when divorced from price signals and market accountability—become instruments of social engineering. They don’t correct failures; they institutionalize them. Rather than fostering resilience and productivity, inflationary policies perpetuate dependency and reward consumption over capital formation.
John Maynard Keynes—whose shadow looms over modern policy—believed that public spending could “prime the pump” of demand. But he underestimated the long-term consequences of monetary manipulation. Mises understood inflation as a form of taxation without legislation—a silent transfer from savers to the politically favored.
The Cultural Erosion of Capitalism
Inflation does not only distort economics, it corrupts culture. When people can no longer trust money as a store of value, they lose the incentive to plan, save, or invest in the long term. Capitalism, which relies on time preference and deferred gratification, becomes caricatured as chaos, exploitation, and consumerism.
Ironically, critics of capitalism often blame it for exactly what inflationary regimes produce: instability, inequality, and moral decadence. The truth is precisely the opposite. In its classical form, capitalism promotes saving, productive investment, and intergenerational wealth-building. It creates incentives for discipline, not waste.
Inflation, on the other hand, shortens horizons. It trains citizens to spend today, borrow recklessly, and hope for bailouts tomorrow. It punishes virtue and rewards recklessness. This erosion of personal responsibility is not accidental; it is systemic.
Austrian Resistance and the Defense of Saving
The Austrian School has long stood against inflationism. For Mises, sound money was a moral and civilizational cornerstone. For Hayek, it was the foundation of freedom. In both views, uncontrolled fiat money was not just bad economics; it was a threat to liberty.
By tying economic value to political discretion, inflationary regimes create a hidden tax—a slow-motion confiscation of purchasing power. Since it operates invisibly, through changes in prices and interest rates, it is harder to resist than overt expropriation.
This is why Austrians emphasize the importance of savings, hard money, and decentralized decision-making. They see money not as a tool of policy, but as a spontaneous order that reflects individual choices, time preferences, and real scarcities.
Conclusion—The Case for Sound Money
Inflation is not destiny; it is a policy. Like all policies, it reflects choices, not natural laws. The choice to inflate rewards the present at the expense of the future, the connected over the productive, and the planner over the participant.
Bitcoin, gold, and other decentralized monetary alternatives are gaining traction precisely because they offer a way out of this trap. But regardless of the instrument, the principle remains: only through sound money can we restore the link between effort and reward, planning and prosperity, freedom and finance.
Until then, every percentage point of inflation is not just a number; it is a signal that theft has been normalized, savings punished, and truth replaced by policy.
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