Inflation Tax
Monetary expansion effectively taxes savers through inflation, transferring wealth from the public to government and connected interests.
When the Federal Reserve expands the money supply, it creates inflation—a hidden tax on everyone who holds dollars. Unlike traditional taxes debated and voted on by Congress, this inflation tax happens automatically through monetary policy. Those closest to the money supply (government, banks, large contractors) spend the new money first at current prices. By the time it reaches ordinary workers and savers, prices have already risen, eroding purchasing power.
Key Points
- Inflation transfers wealth from savers to debtors (especially government)
- Those who receive new money first benefit at the expense of those who receive it last
- No congressional approval or transparency required
- Disproportionately harms fixed-income earners and wage workers
- Since 1971, the dollar has lost over 85% of its purchasing power
Further Reading & Sources
Related Articles
The Great Decoupling: How Productivity and Wages Diverged After 1971
In 1971, President Nixon ended the gold standard. Since then, productivity has soared while real wages have stagnated. This article explores the data and the connection to monetary policy.