edit: s/TIPS/Treasuries
Inflation isn't a measure of how much debt the US federal government takes on or how much money is in circulation after all, but rather the price increases of various commodities and services.
The Keynesian view is that inflation has little to do with monetary supply. The Austrian view is it does, though there are enough real-world examples of inflation without monetary supply increases and deflation with monetary supply increases to safely say that the effect is indirect at best. At the very least, it certainly isn't a 1:1 correlation.
p=2m, q=0.7m, r=1.4m, s=8m, t=0.2m, u=0.6m, v=4.5m
after a while the prices change and now the relationship is the following:
p=2.5m, q=0.5m, r=1.2m, s=7m, t=0.2m, u=2m, v=4.6m
What role has an inflation in the monetary supply played in the change in prices and what role has factors such as scarcity, difficulty of production, labor costs, etc. played in the change of prices? The answer is it's impossible to tell. Sure, you could calculate an average price change between all the goods, but who is to say that this average stems from monetary inflation and not an increase in wages or an incrase in energy costs, for example?
When analyzing inflation in terms of prices, one must also take into account how much those prices would have otherwise dropped due to non-monetary factors such as technological and market progress. If a certain widget is 10% easier to produce than yesterday but the price remains the same due to monetary base expansion, that's a silent 10% reduction of what today's purchasing power should have been. With exponential technological progress, this term is ever-more important.
From a purely moral standpoint I think it's wrong for a government to force an inflating currency onto the public, in order to incentivize the public into buying the government's own debt. I mean, this just seems obviously criminal to me if anyone but the government were caught doing this.
There are certain powers that are useful for someone to be able to exert at specific, well-defined and controlled times. This is why the government has a monopoly on physical force, and for the same reason it has a monopoly on economic force.
Note also that the government doesn't actually force you to use their currency as a store of wealth. You're really only forced to use it to pay your taxes.
I agree with that. But I don't think financially encouraging anyone to use a government-made currency is one of those powers that the government should be entitled to.
> Note also that the government doesn't actually force you to use their currency as a store of wealth. You're really only forced to use it to pay your taxes.
The capital gains tax is an effective way of discouraging anyone from storing their wealth in another asset. Say I had bought gold in 1981 because I (rightly) expected inflation to increase, then in 1986, when the currency had lost half of its purchasing power - and the gold I owned had consequently doubled in dollar-value - I would be legally required to give some of that money back to the government, making the protection of my savings' purchasing power very difficult (if I want to stay on the right side of the law). So while the government doesn't directly force anyone to use their currency to store wealth, they make it less attractive to not do so. And I suspect these efforts would increase should we experience a flee from the dollar in the future.
Legal tender laws is another type of legislation that gives unfair advantage to the government's own currency. So forcing citizens to pay their taxes in the government's currency isn't all the government does wrt. hindering currency competition.
Is there some reason why those with modest savings can't buy treasury bills? TIPS will match inflation and other treasury notes will often perform better. And you can buy them directly from the US government bypassing the "fraudulent consumer-financial industry" altogether.