A little inflation is good for our economy. At least that’s what we are told. But is this really true? And what is Seigniorage?
First let’s make sure we share a common understanding of what inflation is.
In Wikipedia, the introduction to inflation states: “In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.”
Now let’s check a different source and look at the definition of inflation from Webster’s New World Dictionary, 1967 edition which states: “Inflation n, 2: an increase in the amount of currency in circulation or a marked expansion of credit resulting in a fall in the value of the currency and a sharp rise in prices.” (Note: Expansion of credit creates inflation as the credit is monetized into new currency.)
These definitions are a little different aren’t they? So which is it? Is the cause of inflation the rise in the cost of goods or is it the increase in the money supply? Why should we care? If inflation is indeed the rise in the cost of goods, then we can blame those greedy capitalist for price gouging. However, if inflation is the increase in the money supply, then there is no one to blame except those who control the money source, the central bankers at the Federal Reserve. Let’s get to the bottom of this!
If we dig a little deeper even Wikipedia has the answer under “Inflation: Origins”, “Inflation originally referrer to the debasement of the currency. When gold was used as currency, gold coins could be collected by government, melted down, mixed with other metals such as silver, copper or lead, and reissued at the same nominal value. By diluting the gold with other metals, the government could increase the total number of coins issued without also needing to increase the amount of gold used to make them. When the cost of each coin is lowered in this way; the government profits from an increase in seigniorage. This practice would increase the money supply but at the same time lower the relative value of each coin. As the relative value of the coins decrease, consumers would need more coins to exchange for the same goods and services. These goods and services would experience a price increase as the value of each coin is reduced.”
Now I ask you, “What is the difference between debasing and increasing the number of coins in circulation compared to increasing the number of dollars in circulation?” Let’s not forget the debasing of the dollar by removing any redemption ability into a commodity like gold or silver. Isn’t this the same thing only on an even more devastating scale? The gold quantity of our money has been reduced to zero!
My conclusion is that inflation is the increase in the money supply and that increases in the cost of goods are the result of debasing the value of the currency in circulation (by removing its commodity backing and increasing its quantity) and not the other way around. And, what is seigniorage anyway?
Seigniorage is one of those words rarely used or heard today. It is basically the difference between the cost to produce the money and the nominal or face value represented. If it costs 5 cents to print a non-commodity backed $100 fiat bill (Federal Reserve Note), then the seigniorage would be $99.95. And isn’t the seigniorage of money created by digital entry nearly 100%? Who benefits from this value difference?
Again, we need to look at history. In this case the history of the word itself. Seigniorage comes from the word Seignior or Sovereign. Seignior, according to Webster means a “Feudal Lord”. When Kings, Lords and Emperors controlled the money supply, they claimed the right of seigniorage (a covert tax on the people).
Who are these Kings and Lords who control our money? They are the owners of the Federal Reserve Bank and the 12 feudal serfdoms known as the Federal Reserve Regional Banks. They and their owners, with the cooperation and complicity of the federal government, claim the right of seigniorage of Feudal Lords. And we thought we were free from serving royalty!
It should be noted that there are occasions when prices increase for other reasons than currency inflation. When demand for a product exceeds its supply, the product’s relative value goes up. However, while it may take more dollars to buy this product, the increase is isolated to only the products affected by these shortages. These higher prices help attract more resources (capital, labor, and materials) to increase production to end these product shortages. Currency inflations on the other hand affect all products across the board. In this same supply and demand scenario, it is the money itself that is in over-supply and worth less. Or should I say worthless?
You may have heard it claimed that a 1% or 2% annual inflation rate is good for the economy. At just a 2% annual increase in the money supply, the money you earn and save today would lose more than half of its buying power over the average working lifetime. Add in all the taxes we pay and who are we actually working for? Welcome to the serfdom!
The history of the buying power of our money since being controlled by the Federal Reserve is witness to the destruction of our individual wealth. It is common knowledge, admitted even by the Federal Reserve, that our money today has the buying power of about 5% of its original value in 1913. But where does this buying power go? To our Lords and Masters at the Federal Reserve as seigniorage, the Right of Kings.
Economic Vampires Parasites and Cannibals