Inflation reshapes the economy in ways that don’t affect everyone equally.  While some gain temporary benefits, many suffer from the gradual erosion of purchasing power.  Businesses, in particular, must adapt quickly to inflationary pressures.  When they anticipate rising costs, they adjust prices preemptively.  This isn’t a result of greed but a necessity for survival.  If they don’t raise prices now, they won’t be able to afford the future costs of labor, materials, and other inputs.

This cycle begins with the recognition that today’s money will buy less tomorrow.  Businesses must account for this diminished value, pricing goods and services higher to maintain operations.  As this reality becomes evident to consumers, behaviors shift.  People rush to spend their money while it still holds some value, fueling further price increases.  This phenomenon, known as a “crack-up boom,” marks the point where faith in the currency’s stability collapses.

In such an environment, money loses its function as a store of value.  Individuals no longer save but spend as quickly as possible, accelerating rising prices.  Once this trust is broken, recovery becomes increasingly difficult.  The currency becomes little more than paper—or digital entries—without substance.

Money’s origins lie in tangible goods.  Historically, it began as commodities with intrinsic value—gold, silver, or other universally trusted items.  These goods were chosen because they couldn’t be easily replicated, ensuring their value remained stable over time.  Fiat currency derives its worth solely from government decree.  Its value persists only because people trust it to hold that value based on historical precedent.

This creates a fundamental vulnerability: fiat money can be created without limit.  Unlike real goods, which require effort to produce, fiat currency can be printed endlessly.  This benefits those who receive the new money first, often governments and financial institutions, at the expense of everyone else.  Inflation is not a random economic event—it’s a deliberate policy tool used to extract wealth from savers and redistribute it to early recipients of newly created money.

Inflation can’t continue indefinitely.  Eventually, the system reaches a breaking point.  Two outcomes are likely: hyperinflation or economic bust.  In either scenario, the existing monetary system collapses, taking with it the savings and financial stability of countless individuals.  To maintain control, governments may introduce new systems—such as digital currencies—that promise efficiency but come with significant evils.

A state-controlled digital currency would grant unprecedented oversight and control over individual transactions.  Credit expansion could accelerate further, leading to even more volatile boom-and-bust cycles.  Privacy would erode as governments gain the ability to monitor and freeze assets at will.  Such a system would amplify the problems of inflation rather than solve them, creating new layers of economic and social instability.

The lessons of history are clear.  Real goods—those that require effort and resources to produce—can’t be printed into existence.  When money is tied to such goods, inflation remains constrained.  However, when money becomes an abstraction, created at will, it loses its grounding in reality.  The cycle of inflation and eventual collapse becomes inevitable.

Understanding the nature of money is critical.  Inflation is not just an economic inconvenience but a deliberate tool of wealth redistribution and control.  Its effects ripple through society, reshaping behaviors, eroding trust, and undermining freedoms.  If these lessons are ignored, the same mistakes will continue—with increasingly severe consequences.

Reference

Ludwig von Mises; Human Action