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Isn't Inflation Fundamentally a Matter of Violating Property Right

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When discussing money, isn't it correct to say, "Money is (or should be) a form of property obtained by an individual for the purpose of exchange and as a store of value."?  Isn't money private property and once in possession of this kind of property, anyone can buy anything, anywhere as long as there is someone on the other side of the exchange who is willing to accept the buyer's property, the buyer's money?  And like any property, shouldn't the individual protect it from being taken?  Within the context of the proper function of government, shouldn't government enforce this protection?
 
I am asking these questions because I've been sketching out the fundamental characteristics of inflation with an eye toward defining the concept.  I am thinking that instances of violation of property rights serves as the CCD.  As to isolating the units of the concept, I am thinking that what distinguishes these from other types of violations of property rights is that these are forcible ways to increase the supply of money by means of counterfeiting the supply of money, whether through criminal or legalized activities.  From that, I wrote the following definition of the concept.  
 
 
Definition:  Inflation is a violation of property rights by forcing increases to the supply of money by private or legalized counterfeiting.  
 
With that, I welcome your comments and suggestions.
 

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As I recall, the definition of inflation is too much money chasing too few goods and services. Since We, the People, have accepted the federal monetary system, we are at their mercy. The Federal Reserve Bank has the responsibility from controlling the money supply. If I understand your point, (and I'm not sure I do), you wish to re-define inflation, as to mean that lowering the purchasing power of currency, by any means legal or illegal, becomes crime. Well, as far as I can tell, if inflating the dollar is done legally, it's legal. There's not much one can do. Markets generally determine the value of that Federal Reserve Note in your wallet. But the supply of Notes in circulation in supposed to be a function of the Fed.

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No, inflation doesn't violate property rights. The government imposing its currency on a population is a violation of liberty, but, if the money is issued by a private financial institution, manipulating it within the terms it was issued under would not be a violation of anyone's rights.

And financial institutions, if allowed to issue their own currency, would no doubt reserve the right to inflate it to some extent. Even the Bitcoin is inflated (in a predictable way).

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Could debasing a currency, especially surreptitiously, be considered anything other than a form of fraud? In the latter Roman years, the gold and silver coinage of the realm was minted with more base metal than precious metal. Only those more savvy in metal composition would have been in the know, especially at the onset of the precious metal content's diminishment, until the debasement reached the extent that other nations refused to accept it.

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Could debasing a currency, especially surreptitiously, be considered anything other than a form of fraud?

Why are you being ambiguous on purpose? Is it surreptitiously or not?

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Money represents the creation of some real value, to someone.

Whether your money is earned through manual labor, the stock market or even a "nonprofit" organization (assuming it is not governmentally funded); however you have your money, you have it because you did something which someone considered valuable.

 

So long as that is the function of money, to print counterfeit currency is fraud.

 

If counterfeiting is fraud for the individual then it must also be fraud for the government.

 

As in any other act of evasion, our defense against it is honesty.  When money does not mean the creation of value then simply do not treat it as such; convert it into tangible values and get rid of it, to whatever extent you are capable of.

I do not believe it has progressed quite that far yet, but ask me again next year.

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Why are you being ambiguous on purpose? Is it surreptitiously or not?

In the case of the Roman Empire, yes. In the case of the Federal Reserve, it is a government granted monopoly. Currently, they like to call it "Quantitative Easing".

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Definition:  Inflation is a violation of property rights by forcing increases to the supply of money by private or legalized counterfeiting.

As Nicky pointed out, the problem with this concept of inflation is this: where does consensual "expansion" fit? If that type of increase is not inflation, do we create a new concept for that? Is "monetary expansion" the broader concept, with "inflation" being the non-consensual (and therefore rights-violating) type of monetary expansion? Edited by softwareNerd

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As I recall, the definition of inflation is too much money chasing too few goods and services. .... If I understand your point, (and I'm not sure I do), you wish to re-define inflation, as to mean that lowering the purchasing power of currency, by any means legal or illegal, becomes crime. ....

 

Yes, I am focusing on what fundamentally explains inflation.  As I've been thinking about it, I think that it is a form of violating property rights, in particular by forcing an increase in the supply of money.  

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No, inflation doesn't violate property rights. The government imposing its currency on a population is a violation of liberty, but, if the money is issued by a private financial institution, manipulating it within the terms it was issued under would not be a violation of anyone's rights.

And financial institutions, if allowed to issue their own currency, would no doubt reserve the right to inflate it to some extent. Even the Bitcoin is inflated (in a predictable way).

 

Nicky:  Regarding your statement about financial institutions issuing their own currency, are you referring to their issuing money substitutes like notes, check deposits, CDs, credit cards and the like?

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Yes, I am focusing on what fundamentally explains inflation.  As I've been thinking about it, I think that it is a form of violating property rights, in particular by forcing an increase in the supply of money.

When it is done fraudulently, or forced upon people by governments, it does violate property rights.

Nicky:  Regarding your statement about financial institutions issuing their own currency, are you referring to their issuing money substitutes like notes, check deposits, CDs, credit cards and the like?

In these types of cases -- Nicky mentioned bit-coin -- the money supply may be inflated according to some agreed-upon procedure. So, no violation of property rights is entailed. the same would be true of a privately-run bank issuing fractional-reserve notes under some pre-agreed terms.

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In these types of cases -- Nicky mentioned bit-coin -- the money supply may be inflated according to some agreed-upon procedure. So, no violation of property rights is entailed. the same would be true of a privately-run bank issuing fractional-reserve notes under some pre-agreed terms.

Even with a commodity based money, the supply is increased by continued mining, the main difference being that mining is market influenced. If the value of the commodity fell, due to a supply glut, mining efforts would presumably cease until it became worthwhile to pursue again.

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Even with a commodity based money, the supply is increased by continued mining, the main difference being that mining is market influenced. If the value of the commodity fell, due to a supply glut, mining efforts would presumably cease until it became worthwhile to pursue again.

Good point. With commodity money the fraud was when the kings would reduce the gold or silver content, use it to make more coins, but still insist that it be exchanged based on its nominal value. So, that aspect of it was a violation of property rights.

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When it is done fraudulently, or forced upon people by governments, it does violate property rights.

In these types of cases -- Nicky mentioned bit-coin -- the money supply may be inflated according to some agreed-upon procedure. So, no violation of property rights is entailed. the same would be true of a privately-run bank issuing fractional-reserve notes under some pre-agreed terms.

As to agreed-upon procedure between me and the Bank, are you referring to something like these?  

 

I deposit my money in a demand account with the expectation and agreement with the Bank that all of my deposit is available on demand to me and only me and can't be lent out to others.  

 

On the other hand, I deposit my money for the long term and receive say a CD from the Bank and by agreement between me and the Bank, the Bank can lend out my deposit?  

 

Or are you referring to some other types of agreement?

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 With commodity money the fraud was when the kings would reduce the gold or silver content, use it to make more coins, but still insist that it be exchanged based on its nominal value.

So the essential here is fraud which is an extension of evasion. 

Although the miners increased the amount of currency available, they did so by creating value.  The kings stole value by interfering with their subjects' grasps of reality; demanding that they act in opposition to it.

The kings' evasions were of the ultimate consequences of that. . .  Sort of like QE. . .

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I deposit my money in a demand account with the expectation and agreement with the Bank that all of my deposit is available on demand to me and only me and can't be lent out to others.  

 

On the other hand, I deposit my money for the long term and receive say a CD from the Bank and by agreement between me and the Bank, the Bank can lend out my deposit?

Yes, but also a mix of the two: i.e. you deposit money in a bank under an agreement that some part will be lent out, but your whole deposit will be available to you on demand... except that in some pre-defined situations part of what you are given will be in the form of bank notes.

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Money represents the creation of some real value, to someone.

Whether your money is earned through manual labor, the stock market or even a "nonprofit" organization (assuming it is not governmentally funded); however you have your money, you have it because you did something which someone considered valuable.

 

So long as that is the function of money, to print counterfeit currency is fraud.

 

If counterfeiting is fraud for the individual then it must also be fraud for the government.

 

As in any other act of evasion, our defense against it is honesty.  When money does not mean the creation of value then simply do not treat it as such; convert it into tangible values and get rid of it, to whatever extent you are capable of.

I do not believe it has progressed quite that far yet, but ask me again next year.

 

Harrison:  As a form of money what economic good would you chose to represent the creation of some real value?  Thoughts?

Edited by OhReally

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Yes, but also a mix of the two: i.e. you deposit money in a bank under an agreement that some part will be lent out, but your whole deposit will be available to you on demand... except that in some pre-defined situations part of what you are given will be in the form of bank notes.

 

I find another Bank to do business with.  But would you consider doing business with such a Bank that makes your demand deposit fully available to you but (by agreement between the two of you) loans out part of your deposit?

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Harrison: As a form of money what economic good would you chose to represent the creation of some real value? Thoughts?

Literal valuables. Precious metals, gasoline (if you can store it); integrated circuits.

Again, I think it's premature to cash out right now, but I don't know how long it'll remain so.

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I find another Bank to do business with.  But would you consider doing business with such a Bank that makes your demand deposit fully available to you but (by agreement between the two of you) loans out part of your deposit?

It depends on the specifics. There's obviously a place for accounts where all my money is kept at the bank. This is a simple bailment contract. There were some banks that did so in the days of truly private banking.

 

However, most people don't want to keep all their assets in the form of money, because it unproductive. It makes sense to "store" some proportion of one's assets in the form of productive assets. So, one might convert (say) gold into a machine made of steel, knowing that the machine could be used for some productive purpose and at the end of (say) 5 years, one will have more real assets than at the start. Since one cannot do this oneself, it makes sense to loan the money or to buy shares in productive enterprises. All sorts of financial instruments arise to enable this. A bank account that keeps a fraction of the money on hand and lends out the rest is one such form. It is one of the safest forms of making a loan to productive enterprises. The safety of the investment, and steady value that comes from other people providing layers of guarantee gives it money-like characteristics, where other people are willing to accept bank-notes as near-money.

 

In essence, the iron and steel, the factory buildings etc. become partially monetized in the form of bank-notes, where previously only gold and silver were money.

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It depends on the specifics. There's obviously a place for accounts where all my money is kept at the bank. This is a simple bailment contract. There were some banks that did so in the days of truly private banking.

 

However, most people don't want to keep all their assets in the form of money, because it unproductive. It makes sense to "store" some proportion of one's assets in the form of productive assets. So, one might convert (say) gold into a machine made of steel, knowing that the machine could be used for some productive purpose and at the end of (say) 5 years, one will have more real assets than at the start. Since one cannot do this oneself, it makes sense to loan the money or to buy shares in productive enterprises. All sorts of financial instruments arise to enable this. A bank account that keeps a fraction of the money on hand and lends out the rest is one such form. It is one of the safest forms of making a loan to productive enterprises. The safety of the investment, and steady value that comes from other people providing layers of guarantee gives it money-like characteristics, where other people are willing to accept bank-notes as near-money.

 

In essence, the iron and steel, the factory buildings etc. become partially monetized in the form of bank-notes, where previously only gold and silver were money.

 

Regarding your text that I highlighted in bold, I understand it.  A Bank accounts for its Customer's deposit of money, elects to keep some of it in reserve at the Bank and lends out the rest of it.  Here, real money comes into the Bank and a part of the real money is being lent out by the Bank.  But I am unclear about the rest of your thoughts because you say that the money lent by the Bank and "the steady value that comes from other people providing layers of guarantee gives it [the loan of real money?] "money-like" characteristics, where other people are willing to accept bank-notes as near money."  

 

I am confused in that I don't know what you have in mind.  Has the Bank lent part of its Customer's Account or not? Isn't the part of the Customer's Account being lent the real money? If so, then how does it now have characteristics other than real money?  If the Bank lends a note instead of real money, isn't the real money still in the vault of the Bank?  And isn't the face value on the lent note the exact quantity of real money being lent?    

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And isn't the face value on the lent note the exact quantity of real money being lent?

"Real money" isn't a term I'd use. Nevertheless, under fractional reserve banking, the sum of all bank notes, plus all account balances of the customers is more than whatever gold or silver they have deposited in the bank. When the bank lends $60 to someone to buy a home, the customer still has $100 in his account. There are now $160 of customer balances in bank accounts (the $60 may be in the same bank or some other bank). I assume your understanding matches mine up to this point.

The $160 is fractional in the sense that it is backed by only $100 of gold/silver etc. However, in reality, it is also backed by a house worth (say) $80. If the bank keeps a 100% reserve, then each $100 of bank-balance represents $100 of gold. However, if a bank keeps a fractional reserve as described above, each $100 of bank-balance represents a claim to gold and a mortgage, which add up to more than $100. The house is monetized. Similarly, cars, factories and inventories are monetized. When you stand back and look at a fractional reserve system, it is a system where all sorts of assets other than gold have been monetized, and people accept the claims to those as being almost as good as 100% gold money.

 

Of course if I want to put my gold in a 100% reserve bank, I should be able to, and a banker who promises he will keep my gold under a bailment contract should not be able to lend any of it out legally. If governments did not come riding to rescue, perhaps contractual terms would have evolved so that there were clearly two types of banking contracts: one a bailment, and the other a clearer documentation of what the bank was allowed to do in terms of reserves, lending, etc.

 

More can be said on the topic, but I'll stop here for now. 

Edited by softwareNerd

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"Real money" isn't a term I'd use. Nevertheless, under fractional reserve banking, the sum of all bank notes, plus all account balances of the customers is more than whatever gold or silver they have deposited in the bank. When the bank lends $60 to someone to buy a home, the customer still has $100 in his account. There are now $160 of customer balances in bank accounts (the $60 may be in the same bank or some other bank). I assume your understanding matches mine up to this point.

The $160 is fractional in the sense that it is backed by only $100 of gold/silver etc. However, in reality, it is also backed by a house worth (say) $80. If the bank keeps a 100% reserve, then each $100 of bank-balance represents $100 of gold. However, if a bank keeps a fractional reserve as described above, each $100 of bank-balance represents a claim to gold and a mortgage, which add up to more than $100. The house is monetized. Similarly, cars, factories and inventories are monetized. When you stand back and look at a fractional reserve system, it is a system where all sorts of assets other than gold have been monetized, and people accept the claims to those as being almost as good as 100% gold money.

 

Of course if I want to put my gold in a 100% reserve bank, I should be able to, and a banker who promises he will keep my gold under a bailment contract should not be able to lend any of it out legally. If governments did not come riding to rescue, perhaps contractual terms would have evolved so that there were clearly two types of banking contracts: one a bailment, and the other a clearer documentation of what the bank was allowed to do in terms of reserves, lending, etc.

 

More can be said on the topic, but I'll stop here for now. 

 

SN: Thank you for your reply.  Before you say more, I have a question about ownership.  Let's assume a free market.  Say that you're my fractional reserve banker and I deposit 100 gold Eagle coins at your bank.  You and I agree that the coins are not to be kept 100% in reserve by you as my bailee.  You give me 100 notes, each note guaranteeing the holder of the note one gold Eagle upon its presentation to you.   

 

My question is who owns the coins?  You the fractional reserve banker or the note holder(s)?    

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SN: Thank you for your reply.  Before you say more, I have a question about ownership.  Let's assume a free market.  Say that you're my fractional reserve banker and I deposit 100 gold Eagle coins at your bank.  You and I agree that the coins are not to be kept 100% in reserve by you as my bailee.  You give me 100 notes, each note guaranteeing the holder of the note one gold Eagle upon its presentation to you.   

 

My question is who owns the coins?  You the fractional reserve banker or the note holder(s)?    

 

To clarify, though each note entitles you to a gold Eagle on presentation, you are also made fully aware of that a fractional-reserve being employed. In other words, you know this is not a regular bailment. (If you wanted something close to a bailment, you would put the money in a 100% reserve account.) Using a fractional reserve account, you know that a bank will not be able to fulfill its commitment to you if it faces a run.

 

Traditionally, the depositor is not the owner of the actual gold deposited into a bank, even in a 100% system. He is a creditor of the bank. If you want a literal bailment, you would put your eagles in a safety deposit box at the bank and withdraw your specific physical coins whenever you want.

 

However, the actual ownership is not material as long as you have full awareness of the bank's intent, and agree to its actions before the fact. Under a scheme of retained ownership, if you nevertheless allow the bank to lend your gold, the bank is acting as your agent. 

 

The law around fractional banking was never perfected. Instead, governments stepped in with one-time measures, and finally we have fiat money central banks that make the whole thing irrelevant. It's impossible to say whether the law would have evolved with ownership retained by the depositor, or if it would have stayed the traditional way (which I suspect it would). Or, perhaps both types of accounts would have evolved. It really does not matter; but if you have a concern about one of them, assume it and argue against it... I'll be glad to take the other side.

Edited by softwareNerd

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