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March 17, 2024

Americans today do not need advanced economics education to recognize rising costs due to inflation, but they do need an achievable solution. 

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In February, the TIPP Insights editorial board reported, “Prices have increased by 17.3%, while real wages have declined by 2.0%, meaning Americans have taken a 2.0% pay cut under the current administration.  To put it differently, people now need 19.3% more income than they had in January 2021 to maintain their living standards. According to some estimates, Americans need an extra $11,400 a year to make ends meet.”

A number of factors have been blamed for inflation, including supply chain disruptions following the 2020 lockdown policies, market reactions to international conflict, major federal spending increases, and domestic energy policies.

In addition to these explanations, another more fundamental factor has been widely cited, especially within libertarian and conservative circles.  That explanation is the expansion of the money supply driven by the U.S. Treasury and Federal Reserve. 

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Nobel Prize–winning economist Milton Friedman repeatedly explained, “Inflation is always and everywhere a monetary phenomenon.  It is a result of a greater increase in the quantity of money, than in the output of goods and services, which is available for spending.”

Sharing in Friedman’s understanding, Congressman Ron Paul (R-Texas) led an effort to constrain this monetary phenomenon by restoring the United States to a gold standard, in response to the 1970s inflation crisis.

“During most of the nineteenth century, we had a functioning gold standard.  Combined with classical liberal economic policies and limited government, this set the stage for the greatest economic growth in history,” he explained in his 1981 book on the subject.

Pre-emptively answering his critics, Congressman Paul explained, “Interventionist economists carelessly criticize the spreading of economic growth throughout a free-market society as the ‘trickle-down theory.’  But inflation, by trickling, then rushing, through society, spreads economic misery among the poor, working, and middle classes, while enriching the special interests.  It is this ‘trickling-down’ that deserves condemnation from everyone concerned about poverty.” 

Similarly, economist Murray Rothbard condemned the unfair results of inflationary policy, which he likened to counterfeiting. 

New money injected into the economy has an inevitable ripple effect; early receivers of the new money spend more and bid up prices, while later receivers or those on fixed incomes find the prices of the goods they must buy unaccountably rising, while their own incomes lag behind or remain the same.  Monetary inflation, in other words, not only raises prices and destroys the value of the currency unit; it also acts as a giant system of expropriation of the late receivers by the counterfeiters themselves and by the other early receivers.  Monetary expansion is a massive scheme of hidden redistribution.