Chapter 13 of the book: The Ethics of Money Production: The Cultural and Spiritual Legacy of Fiat Inflation

A great interview by Tom Woods of Jörg Guido Hülsmann regarding Chapter  13 of his book: The Ethics of Money Production:


Inflation: Its Cultural and Political Consequences–Interview of Guido Hülsmann–Tom Woods Show


Chapter 13 of The Ethics of Money Production 

The Cultural and Spiritual
Legacy of Fiat Inflation
The notion that inflation is harmful is a staple of economic science. But most textbooks underrate the extent of the harm, because they define inflation much too narrowly as a lasting decrease of the purchasing power of money (PPM), and also because they pay scant attention to the concrete forms of inflation. To appreciate the disruptive nature of inflation in its full extent we must keep in mind that it springs from a violation of the fundamental rules of society. Inflation
is what happens when people increase the money supply by
fraud, imposition, and breach of contract. Invariably it produces three characteristic consequences: (1) it benefits the perpetrators at the expense of all other money users; (2) it allowsthe accumulation of debt beyond the level debts could reach on the free market; and (3) it reduces the PPM below the level
it would have reached on the free market.
While these three consequences are bad enough, things get
much worse once inflation is encouraged and promoted by
the state. The government’s fiat makes inflation perennial,
and as a result we observe the formation of inflation-specific
institutions and habits. Thus fiat inflation leaves a characteristic cultural and spiritual stain on human society. In the present chapter, we will take a closer look at some aspects of this legacy.


Inflation benefits the government that controls it, not only
at the expense of the population at large, but also at the
expense of all secondary and tertiary governments. It is a well known fact that the European kings, during the rise of their
nation states in the seventeenth and eighteenth centuries,
crushed the major vestiges of intermediate power. The democratic nation states of the nineteenth and twentieth centuries
completed the centralization of power that had been begun
under the kings.1 The economic driving force of this process
was inflation, which at that point was entirely in the hands of
the central state apparatus. More than any other economic reason, it made the nation state irresistible. And thus it contributed, indirectly at least, to the popularity of nationalistic ideologies, which in the twentieth century ushered in a frenetic worshipping of the nation-state.
Inflation spurs the growth of central governments. It
allows these governments to grow larger than they could
become in a free society. And it allows them to monopolize
governmental functions to an extent that would not occur
under a natural production of money. This comes at the
expense of all forms of intermediate government, and of
course at the expense of civil society at large. The inflation sponsored centralization of power turns the average citizen
more and more into an isolated social atom. All of his social
bonds are controlled by the central state, which also provides
most of the services that formerly were provided by other
social entities such as family and local government. At the
same time, the central direction of the state apparatus is
removed from the daily life of its wards.
It is difficult to reconcile these trends with the goal of a
well-ordered society. In the nineteenth century, the French
sociologist Frédéric LePlay, an astute and critical observer of

the centralization of state power, established the moral principle of subsidiarity, according to which any problem should be
solved by the—in political terms—lowest-ranking person or
organization that is able to solve it.2 Leo XIII then canonized
this principle, in a manner of speaking, in Rerum Novarum
(§§13, 35), without calling it by its name. Only in 1931, Pope
Pius XI adopted the expression “subsidiarity,” in his encyclical
Quadragesimo Anno. But moral precepts will not stop a trend
that springs from such powerful sources. The evil has to be
attacked at the root.
Among the most gruesome consequences of fiat money,
and of paper money in particular, is its ability to extend the
length of wars. The destructions of war have the healthy effect
of cooling down initial war frenzies. The more protracted and
destructive a war becomes, therefore, the less is the population inclined to support it financially through taxes and the
purchase of public bonds. Fiat inflation allows the government to ignore the fiscal resistance of its citizens and to maintain the war effort on its present level, or even to increase that level. The government just prints the notes it needs to buy
cannons and boots.3

This is exactly what happened in the two world wars of the
twentieth century, at least in the case of the European states.
The governments of France, Germany, Italy, Russia, and the
United Kingdom covered a large part of their expenses
through inflation. It is of course difficult to evaluate any precise quantitative impact, but it is not unreasonable to assume
that fiat inflation prolonged both wars by many months or
even one or two years. If we consider that the killings reached
their climax toward the end of the war, we must assume that
many millions of lives could have been saved.
Many people believe that, in war, all means are just. In
their eyes, fiat inflation is legitimate as a means to fend off
lethal threats to a nation. But this argument is rather defective.
It is not the case that all means are just in a war. There is in
Catholic theology a theory of just war, which stresses exactly
this point. Fiat inflation would certainly be illegitimate if less
offensive means were available to attain the same end. And
fact is that such means exist and have always been at the disposition of governments, for example, credit money and additional taxation.
Another typical line of defense of fiat money in wartimes
is that the government might know better than the citizens
just how near victory is at hand. The ignorant population
grows weary of the war and tends to resist additional taxation.
But the government is perfectly acquainted with the situation.
Without fiat money, its hands would be tied, with potentially
disastrous consequences. The inflation just gives it the little
extra something needed to win.
It is of course conceivable that the government is better
informed than its citizens. But it is difficult to see why this
should be an obstacle in war finance. The most essential task of
political leadership is to rally the masses behind its cause. Why
should it be impossible for a government to spread its better
information, thus convincing the populace of the need for
additional taxes? This brings us to the following consideration.

War is only the most extreme case in which fiat inflation
allows governments to pursue their goals without genuine
support from their citizens. The printing press allows the
government to tap the property of its people without having
obtained their consent, and in fact against their wishes. What
kind of government is it that arbitrarily takes the property of
its citizens? Aristotle and many other political philosophers
have called it tyranny. And monetary theorists from Oresme
to Mises have pointed out that fiat inflation, considered as a
tool of government finance, is the financial technique characteristic of tyranny.
As we have seen in some detail, fiat inflation is an inherently unstable way of producing money because it turns
moral hazard and irresponsibility into an institution. The
results are frequently recurring economic crises. Past efforts to
repair these unwelcome effects, yet without questioning the
principle of fiat inflation per se, have entailed a peculiar evolution of monetary institutions—a kind of institutional “race
to the bottom.” This does not of course imply a quick process.
The devolution of monetary institutions has been underway
for centuries, and it has still not quite reached the absolute
bottom, even though the process has accelerated considerably
in our age of paper money. We have dealt with this phenomenon already at some length and will present it in greater historical context in Part Three.
Fiat inflation has a profound impact on corporate finance.
It makes liabilities (credit) cheaper than they would be on a
free market. This prompts entrepreneurs to finance their ventures to a greater extent than otherwise through credit, rather
than through equity (the capital brought into the firm by its

In a natural system of money production, banks would
grant credit only as financial intermediaries. That is, they
could lend out only those sums of money that they had either
saved themselves or which other people had saved and then
lent to the banks. The bankers would of course be free to grant
credit under any terms (interest, securities, duration) they like;
but it would be suicidal for them to offer better terms than
those that their own creditors had granted them. For example,
if a bank receives a credit at 5 percent, it would be suicidal for
it to lend this money at 4 percent. It follows that on a free market, profitable banking is constrained within fairly narrow
limits, which in turn are determined by the savers. It is not
possible for a bank to stay in business and to offer better terms
than the savers who are most ready to part with their money
for some time.
But fractionalreserve banks can do precisely that. Since
they can produce additional bank credit at virtually zero cost,
they can grant credit at rates that are lower than the rates that
would otherwise have prevailed. And the beneficiaries will
therefore finance some ventures through debts that they
would otherwise have financed with their own money, or
which they would not have started at all. Paper money has
very much the same effect, but in a far greater magnitude. A
paper-money producer can grant credit to virtually any extent
and on virtually any terms. In the past few years, the Bank of
Japan has offered credit at zero percent interest, and then proceeded in some cases to actually pay people for borrowing its credit.

It is obvious that few firms can afford to resist such offers.
Competition is fierce in most industries, and the firms must
seek to use the best terms available, lest they lose that “competitive edge” that can be decisive for profits and also for mere survival. It follows that fiat inflation makes business more dependent on banks than they otherwise would be. It creates
greater hierarchy and central decision-making power than
would exist on the free market. The entrepreneur who operates with 10 percent equity and 90 percent debt is not really anentrepreneur anymore. His creditors (usually bankers) are the

true entrepreneurs who make all essential decisions. He is just
a more or less well-paid executive—a manager.
Thus fiat inflation reduces the number of true entrepreneurs—independent men who operate with their own money.
Such men still exist in astonishing numbers, but they can only
survive because their superior talents match the inferior financial terms with which they have to cope. They must be more
innovative and work harder than their competitors. They
know the price of independence and they are ready to pay it.
Usually they are more attached to the family business and care
more for their employees than the puppets of bankers.
Because credit springing from fiat inflation provides an
easy financial edge, they have the tendency to encourage reckless behavior of the chief executives.4 This is especially the
case with managers of large corporations who have easy access
to the capital markets. Their recklessness is often confused with
innovativeness. Indeed, the economist Joseph Schumpeter has
famously characterized fractional-reserve banks as being some
sort of mainspring of economic development.5 He argued that
such banks may use their ability to create credit out of thin air
(ex nihilo) to provide funding for innovative entrepreneurs. It is
conceivable that in some cases they played this role, but the
odds are overwhelmingly on the other side. As a general rule,
any new product and any thoroughgoing innovation in business organization is a threat for banks, because they are
already more or less heavily invested in established companies, which produce the old products and use the old forms of

organization. They have therefore every incentive to either prevent the innovation by declining to finance it, or to communicate the new ideas to their existing partners in the business world. Thus, fractionalreserve banking makes business more conservative than it otherwise would be. It benefits the established firms at the expense of innovative newcomers. Innovation is much more likely to come from independent businessmen, especially if income taxation is low.
Some of the foregoing considerations also apply outside of
the business world. Fiat inflation provides easy credit not only
to governments and firms, but also to private persons. The
mere fact that such credit is offered at all incites some people
to go into debt who would otherwise have chosen not to do
so. But easy credit becomes nearly irresistible in connection
with another typical consequence of inflation, namely, the
constantly rising price level. Whereas in former times the
increase of prices has been barely noticeable, in our day all citizens of the western world perceive the phenomenon. In countries such as Turkey or Brazil, where prices have increased
until recently at annual rates of 80 to 100 percent, even younger
people have personally experienced it.
Such conditions impose a heavy penalty on cash savings.
In the old days, saving was typically done in the form of
hoarding gold and silver coins. It is true that such hoards did
not provide any return—the metal was “barren”—and that
they therefore did not lend themselves to the lifestyle of rentiers. But in all other respects money hoards were a reliable
and effective form of saving. Their purchasing power did not
just evaporate in a few decades, and in times of economic
growth they even gained some purchasing power. Most
importantly, they were extremely suitable for ordinary people.
Carpenters, masons, tailors, and farmers are usually not very
astute observers of the international capital markets. Putting
some gold coins under their mattress or into a safe deposit box
saved them many sleepless nights, and it made them independent of financial intermediaries.

Now compare this old-time scenario with our present situation. The contrast could not be starker. It would be completely pointless in our day to hoard dollar or euro notes to prepare for retirement. A man in his thirties who plans to
retire thirty years from today (2008) must calculate with a
depreciation factor in the order of 3. That is, he needs to save
three dollars today to have the purchasing power of one of
these present-day dollars when he retires. And the estimated
depreciation factor of 3 is rather on the low side! It follows
that the rational saving strategy for him is to go into debt in
order to buy assets the price of which will increase with the
inflation. This is exactly what happens today in most western
countries. As soon as young people have a job and thus a
halfway stable source of revenue, they take a mortgage to buy
a house—whereas their great-grandfather might still have
first accumulated savings for some thirty years and then
bought his house with cash.
Things are not much better for those who have already
accumulated some wealth. It is true that inflation does not
force them into debt, but in any case it deprives them of the
possibility of holding their savings in cash. Old people with a
pension fund, widows, and the guardians of orphans must
invest their money into the financial markets, lest its purchasing power evaporate under their noses. Thus they become
dependent on intermediaries and on the vagaries of stock and
bond pricing.
It is clear that this state of affairs is very beneficial for those
who derive their living from the financial markets. Stockbrokers, bond dealers, banks, mortgage corporations, and other
“players” have reason to be thankful for the constant decline
of money’s purchasing power under fiat inflation. But is this
state of affairs also beneficial for the average citizen? In a certain sense, his debts and increased investment in the financial
markets is beneficial for him, given our present inflationary
regime. When the increase of the price level is perennial, personal debt is for him the best available strategy. But this means
of course that without government intervention into the monetary system other strategies would be superior. The presence
of central banks and paper money make debt-based financial

strategies more attractive than strategies based on prior savings. In the words of Dempsey, we might say that “we have
the effect of usury without the personal fault” of the financial
agents. “The usury is institutionalized, or systemic.”6
It is not an exaggeration to say that, through their monetary policy, Western governments have pushed their citizens
into a state of financial dependency unknown to any previous
generation. Already in 1931, Pius XI stated:
. . . it is obvious that not only is wealth concentrated in our
times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their
own arbitrary will and pleasure.
This dictatorship is being most forcibly exercised by those
who, since they hold the money and completely control it,
control credit also and rule the lending of money. Hence
they regulate the flow, so to speak, of the life-blood whereby
the entire economic system lives, and have so firmly in their
grasp the soul, as it were, of economic life that no one can
breathe against their will.7
One wonders which vocabulary Pius XI would have used
to describe our present situation. The usual justification for
this state of affairs is that it allegedly stimulates industrial
development. The money hoards of former times were not
only sterile; they were actually harmful from an economic
point of view, because they deprived business of the means of

payments they needed for investments. The role of inflation is
to provide these means.
We have already exploded this myth in some detail. At
this point, let us merely emphasize again that money hoarding does not have any negative macroeconomic implications.
It definitely does not stifle industrial investments. Hoarding
increases the purchasing power of money and thus gives
greater “weight” to the money units that remain in circulation.
All goods and services can be bought, and all feasible investments can be made with these remaining units. The fundamental fact is that inflation does not bring into existence any additional resource. It merely changes the allocation of the
existing resources. They no longer go to companies that are
run by entrepreneurs who operate with their own money, but
to business executives who run companies financed with
The net effect of the recent surge in household debt is
therefore to throw entire populations into financial dependency. The moral implications are clear. Towering debts are
incompatible with financial self-reliance and thus they tend to
weaken self-reliance also in all other spheres. The debt-ridden
individual eventually adopts the habit of turning to others for
help, rather than maturing into an economic and moral
anchor of his family, and of his wider community. Wishful
thinking and submissiveness replace soberness and independent judgment. And what about the many cases in which
families can no longer shoulder the debt load? Then the result
is either despair or, alternatively, scorn for all standards of
financial sanity.
Fiat inflation constantly reduces the purchasing power of
money. To some extent, it is possible for people to protect their
savings against this trend, but this requires thorough financial
knowledge, the time to constantly supervise one’s investments, and a good dose of luck. People who lack one of these
ingredients are likely to lose a substantial part of their assets.
The savings of a lifetime often vanish into thin air during the
last few years spent in retirement. The consequence is despair

and the eradication of moral and social standards. But it
would be wrong to infer that inflation produces this effect
mainly among the elderly. As one writer observed:
These effects are “especially strong among the youth. They
learn to live in the present and scorn those who try to teach
them ‘old-fashioned’ morality and thrift” [emphasis added].
Inflation thereby encourages a mentality of immediate gratification that is plainly at variance with the discipline and
eternal perspective required to exercise principles of biblical
stewardship—such as long-term investment for the benefit
of future generations.8

Even those citizens who are blessed with the knowledge,
time, and luck to protect the substance of their savings cannot
evade inflation’s harmful impact, because they have to adopt
habits that are at odds with moral and spiritual health. Inflation forces them to spend much more time thinking about
their money than they otherwise would. We have noticed
already that the old way for ordinary citizens to make savings
was the accumulation of cash. Under fiat inflation this strategy is suicidal. They must invest in assets the value of which
grows during the inflation; the most practical way to do this is
to buy stocks and bonds. But this entails many hours spent on
comparing and selecting appropriate issues. And it compels
them to be ever watchful and concerned about their money for
the rest of their lives. They need to follow the financial news
and monitor the price quotations on the financial markets.
Similarly, people will tend to prolong the phase of their life
in which they strive to earn money. And they will place relatively greater emphasis on monetary returns than on any
other criterion for choosing their profession. For example,
some of those who would rather be inclined to gardening will

nevertheless seek an industrial employment if the latter offers
greater long-run monetary returns. And more people will
accept employment far from home, if it allows them to earn a
little additional money, than under a natural monetary system.
The spiritual dimension of these inflation-induced habits
seems obvious. Money and financial questions come to play
an exaggerated role in the life of man. Inflation makes society
materialistic. More and more people strive for money income
at the expense of other things important for personal happiness. Inflation-induced geographical mobility artificially
weakens family bonds and patriotic loyalty. Many of those
who tend to be greedy, envious, and niggardly anyway fall
prey to sin. Even those who are not so inclined by their natures
will be exposed to temptations they would not otherwise have
felt. And because the vagaries of the financial markets also provide a ready excuse for an excessively parsimonious use of
one’s money, donations for charitable institutions decline.
Then there is the fact that perennial inflation tends to deteriorate product quality. Every seller knows that it is difficult to
sell the same physical product at higher prices than in previous years. But increasing money prices are unavoidable when
the money supply is subject to relentless growth. So what do
sellers do? In many cases the rescue comes through technological innovation, which allows a cheaper production of the
product, thus neutralizing or even overcompensating the
countervailing influence of inflation. This is for example the
case with personal computers and other products made with
large inputs of information technology. But in other industries, technological progress plays a much smaller role. Here
the sellers confront the above-mentioned problem. They then
fabricate an inferior product and sell it under the same name,
along with the euphemisms that have become customary in
commercial marketing. For example, they might offer their
customers “light” coffee and “non-spicy” vegetables—which
translates into thin coffee and vegetables that have lost any
trace of flavor. Similar product deterioration can be observed
in the construction business. Countries plagued by perennial

inflation seem to have a greater share of houses and streets
that are in constant need of repair than other countries.
In such an environment, people develop a more than
sloppy attitude toward their language. If everything is
whatever it is called, then it is difficult to explain the difference between truth and lie. Inflation tempts people to lie
about their products, and perennial inflation encourages the
habit of routine lying. We have already pointed out that routine lying plays a great role in fractional-reserve banking, the
basic institution of the fiat money system. Fiat inflation seems
to spread this habit like a cancer over the rest of the economy.9
In most countries, the growth of the welfare state has been
financed through the accumulation of public debt on a scale
that would have been unthinkable without fiat inflation. A
cursory glance at the historical record shows that the exponential growth of the welfare state, which in Europe started in
the early 1970s, went hand in hand with the explosion of public debt. It is widely known that this development has been a
major factor in the decline of the family. But it is commonly
overlooked that the ultimate cause of this decline is fiat
inflation. Perennial inflation slowly but assuredly destroys the
family, thus suffocating the earthly flame of morals.
Indeed, the family is the most important “producer” of a
certain type of morals. Family life is possible only if all members endorse norms such as the legitimacy of authority, and
the prohibition of incest. And Christian families are based on
additional precepts such as the heterosexual union between
man and woman, love of the spouses for one another and for
their offspring, the respect of children for their parents, as well
as belief in the reality of the Triune God and of the truth of the

Christian faith, etc. Parents constantly repeat, emphasize, and
live these norms and precepts. Thus all family members come
to accept them as the normal state of affairs. In the wider
social sphere, then, these persons act as advocates of the same
norms in business associations, clubs, and politics.
Friends and foes of the traditional family agree on these
facts. It is among other things because they recognize the family’s effectiveness in establishing social norms that Christians
seek to protect it. And it is precisely for the same reason that
advocates of moral license seek to undermine it. The welfare
state has been their preferred tool in the past thirty years.
Today, the welfare state provides a great number of services
that in former times have been provided by families (and
which would, we may assume, still be provided to a large
extent by families if the welfare state ceased to exist). Education of the young, care for the elderly and the sick, assistance
in times of emergencies—all of these services are today effectively “outsourced” to the state. The families have been
degraded into small production units that share utility bills,
cars, refrigerators, and of course the tax bill. The tax-financed
welfare state then provides them with education and care.10
From an economic point of view, this arrangement is a
pure waste of money. The fact is that the welfare state is inefficient; it provides comparatively lousy services at comparatively high costs. We need not dwell on the inability of government welfare agencies to provide the emotional and
spiritual assistance that only springs from charity. Compassion cannot be bought. But the welfare state is also inefficient
in purely economic terms. It operates through large bureaucracies and is therefore liable to lack incentives and economic

criteria that would prevent wasting money. In the words of
Pope John Paul II:
By intervening directly and depriving society of its responsibility, the Social Assistance State leads to a loss of human
energies and an inordinate increase of public agencies,
which are dominated more by bureaucratic ways of thinking
than by concern for serving their clients, and which are accompanied by an enormous increase in spending. In fact, it would
appear that needs are best understood and satisfied by people
who are closest to them and who act as neighbors to those in
need. It should be added that certain kinds of demands often
call for a response which is not simply material but which is
capable of perceiving the deeper human need.11
Everyone knows this from first-hand experience, and a
great number of scientific studies drive home the same point.
It is precisely because the welfare state is an inefficient economic arrangement that it must rely on taxes. If it had to compete with families on equal terms, it could not stay in business
for any length of time. It has driven the family and private
charities out of the “welfare market” because people are forced
to pay for it anyway. They are forced to pay taxes, and they
cannot prevent the government from floating ever-new loans,
which absorb the capital that otherwise would be used for the
production of different goods and services.
The excessive welfare state of our day is an all-out direct
attack on the producers of morals. But it weakens these morals
also in indirect ways, most notably by subsidizing bad moral
examples. The fact is that libertine “lifestyles” carry great economic risks. The welfare state socializes the costs of morally
reckless behavior and therefore gives it far greater prominence
than it would have in a free society. Rather than carrying an
economic penalty, licentiousness might then actually go hand
in hand with economic advantages, because it frees the protagonists from the costs of family life (for example, the costs
associated with raising children). With the backing of the welfare state, these protagonists may mock conservative morals

as some sort of superstition that has no real-life impact. The
welfare state systematically exposes people to the temptation
of believing that there are no time-tested moral precepts at all.
Let us emphasize that the point of the preceding observations was not to attack welfare services, which are in fact an
essential component of society. Neither is it here our intention
to attack the notion that welfare services should be provided
through government. The point is, rather, that fiat inflation
destroys the democratic control over the provision of these
services; that this invariably leads to excessive growth of the
aggregate welfare system and to excessive forms of welfare;
and that this in turn is not without consequences for the moral
and spiritual character of the population.
The considerations presented in this chapter are by no
means an exhaustive account of the cultural and spiritual
legacy of fiat inflation. But they should suffice to substantiate
the main point: that fiat inflation is a juggernaut of social, economic, cultural, and spiritual destruction.12 Let us now turn to
complement our analysis with a look at the historical evolution of monetary systems


1See Alexis de Tocqueville, L’Ancien régime et la Révolution (Paris: Michel
Lévy frères, 1856); Bertrand de Jouvenel, Du pouvoir (Geneva: Bourquin,
1945); Hans-Hermann Hoppe, Democracy—The God That Failed (New
Brunswick, N.J.: Transaction, 2001).

2On LePlay see Charles Gide and Charles Rist, Histoire des doctrines
économiques, 6th ed. (Paris: Dalloz, 2000), bk. 5, chap. 2, pp. 582–90. On
the principle of subsidiarity in Catholic social doctrine, see Pontifical
Council for Justice and Peace, Compendium of the Social Doctrine of the
Church, §185–88.
3According to Kant, world peace presupposed that public debt not be
used to finance war since this would unduly facilitate the waging of
war. See Immanuel Kant, “Zum Ewigen Frieden—ein philosophischer
Entwurf,” Werkausgabe 11 (Frankfurt: Suhrkamp, 1991), pp. 198–99.
However, the prohibition of a particular use of public debt is unlikely to
be effective in practice because it is impossible to tie up a particular type
of revenue with a particular type of expenditure. (The government can
always claim that it pays for military expenditure with revenue from
taxes, whereas the public debt is used for non-military purposes.) It is
therefore more effective to attack the problem at its root and to abolish  the legal dispositions that impose fractional-reserve banking and paper
money. The reduction of the public debt would be a logical consequence.

4The intimate connection between such recklessness and the prevailing
monetary system is usually overlooked, even in penetrating studies of
the subject. See for example A. de Salins and F. Villeroy de Galhau, Le
développement moderne des activités financiers au regard des exigencies
éthiques du Christianisme (Vatican: Libreria Editrice Vaticana, 1994), in
particular pp. 23–34 where the authors discuss the impact of the “financial sphere” on the economy without even mentioning the problems of
moral hazard and of the lender-of-last-resort concept.
5See Joseph A. Schumpeter, Theorie der wirtschaftlichen Entwicklung, 4th
ed. (Berlin: Duncker & Humblot, [1934] 1993), chap. 3.

6Bernard Dempsey, Interest and Usury (Washington, D.C.: American
Council of Public Affairs, 1943), p. 207. Dempsey analyzes this phenomenon by distinguishing two forms of “emergent loss” (one of the extrinsic grounds on which interest is licit): “antecedent” and “consequent”
emergent loss. See also, pp. 200ff.
7Pius XI, Quadragesimo Anno (1931), §105, 106. See also Deuteronomy 28:
12, 43–44.

8Thomas Woods, “Money and Morality: The Christian Moral Tradition
and the Best Monetary Regime,” Religion & Liberty 13, no. 5 (September/October 2003). The author quotes Ludwig von Mises. See also
William Gouge, A Short History of Paper Money and Banking in the United
States, to which is prefixed an Inquiry into the Principles of the System
(Reprint, New York: Augustus M. Kelley, [1833] 1968), pp. 94–101.

9The relationship between fiat inflation on the one hand, and misperceptions and misrepresentations of reality on the other hand has been
brilliantly discussed in Paul Cantor’s case study on “Hyperinflation and
Hyperreality: Thomas Mann in Light of Austrian Economics,” Review of
Austrian Economics 7, no. 1 (1994).

10In many countries it is today possible for families to deduct expenses
for private care and private education from the annual tax bill. But ironically (or maybe not quite so ironically) this trend has reinforced the erosion of the family. For example, recent provisions of the U.S. tax code
allow family budgets to increase through such deductions—but only if
the deductible services are not provided by family members, but bought
from other people,

11John Paul II, Centesimus Annus, §48.

12Our study seems to suggest that there is definitely something diabolical in fiat inflation. But we feel incompetent to deal with this question
and leave its analysis for another time, or for other scholars. It is certainly significant that a great poet such as Goethe would portray paper
money as a creation of the devil. See Faust, part II, Lustgartenszene.

The Ethics of Money Production, Chapter 13, pp. 175-191, Jörg Guido Hülsmann



Book: The Ethics of Money Production–Jörg Guido Hülsmann


Some Spiritual Causalities of Fiat Inflation


New Testament contains 215 verses pertaining to faith; 218 pertaining to salvation; and 2,084 dealing with money matters


The Ethics of Money Production–Jörg Guido Hülsman (Video)


Debasement and Crony Capitalism; Nothing is New Under the Sun


Micah 6: 10-16

10 Are there yet the treasures of wickedness in the house of the wicked, and the scant measure that is abominable?

11 Shall I count them pure with the wicked balances, and with the bag of deceitful weights? [modern day fiat currency and fiat fractional reserve credit]

12 For the rich men thereof are full of violence, and the inhabitants thereof have spoken lies, and their tongue is deceitful in their mouth.

13 Therefore also will I make thee sick in smiting thee, in making thee desolate because of thy sins.

14 Thou shalt eat, but not be satisfied; and thy casting down shall be in the midst of thee; and thou shalt take hold, but shalt not deliver; and that which thou deliverest will I give up to the sword.

15 Thou shalt sow, but thou shalt not reap; thou shalt tread the olives, but thou shalt not anoint thee with oil; and sweet wine, but shalt not drink wine.

16 For the statutes of Omri are kept, and all the works of the house of Ahab, and ye walk in their counsels; that I should make thee a desolation, and the inhabitants thereof an hissing: therefore ye shall bear the reproach of my people.


Proverbs 20:10

10 Divers [different] weights, and divers measures, both of them are alike abomination to the Lord.

Leviticus 19:35-37 

35 ‘You shall do no wrong in judgment, in measurement of weight, or capacity.

36 You shall have just balances, just weights, a just ephah, and a just hin; I am the Lord your God, who brought you out from the land of Egypt.

37 You shall thus observe all My statutes and all My ordinances and do them; I am the Lord.’


Now listen, you rich people, weep and wail because of the misery that is coming on you. Your wealth has rotted, and moths have eaten your clothes. Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. THE MORAL ISSUES OF MONEY


Monetary Inflation: An Economic and Ethical Evil


Mises explains inflation so that one can understand why debasing currency (unequal weights and measures) IS AN ABOMINATION TO GOD


Soaking the Future Poor


Debasement and Crony Capitalism; Nothing is New Under the Sun


Isaiah’s Critique Of Inflation—Gary North


They are waxen fat, they shine: yea, they overpass the deeds of the wicked: they judge not the cause, the cause of the fatherless, yet they prosper; and the right of the needy do they not judge. Jeremiah 5


Woe unto you that are rich! for you have received your consolation


Why You Should Read Mark Thornton’s The Skyscraper Curse

Thornton begins with an important discussion of money creation and Richard Cantillon, writing: “… Richard Cantillon (1680s-1734?) [was] the first economic theorist and proto-Austrian economist …[he] showed how the interest rate and the money supply can create changes and distortions in the economy, a phenomenon now referred to as “Cantillon effects.”

Monetary inflation is affected by who gets the money and credit first and who gets it last. As fiat money is created by central banks, private banks are in a position to expand the amount of loans they make. The wealthy have established relationships with the banks, and they have the real estate and assets to provide collateral for the loans. Large, established companies and wealthy individuals are in favorable positions relative to small businesses and people with low or average incomes. The loans allow big companies and wealthy individuals to invest in capital goods during the boom phase of the business cycle. Central banks thereby create artificial inequality and poverty. This is the primary Cantillon effect of redistributing wealth.”

Why You Should Read Mark Thornton’s The Skyscraper Curse



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