There is almost complete unanimity among economists and various commentators that inflation is about general increases in the prices of goods and services. From this it is concluded that anything that contributes to price increases constitutes inflation. However, inflation is not a general increase in prices but embezzlement through artificial increases in money supply.
In an unhampered market economy, with a market-selected money such as gold, a producer of goods exchanges his production for money and then employs the money to make further exchanges for the goods of other producers. Production is exchanged for production by means of money.
In the present monetary system however, an inflationary increase in money supply produces an exchange of nothing for something. Money is generated out of “thin air” and exchanged for produced goods or services. Thereby producers are defrauded. Goods are channeled from wealth-producers to non-wealth-producers. Alternatively, inflation of money supply facilitates consumption without preceding production—a counterfeiter effect.
The Counterfeiter Effect and Monetary Growth
Consider the case of a counterfeiter who generates fake money that masquerades as real money. The counterfeiter uses the forged money to fraudulently exchange it for goods and services. The forger has produced nothing useful (except to him), but exchange of fake money for goods facilitates an exchange of nothing for something.
Whenever the central bank—through its expansionary monetary policy—enables an increase in the money supply, this has the same principle effects at the counterfeiter, but on a much larger scale. Expansionary monetary policy provides the base for the counterfeiter effect. The early receivers of the newly-inflated money and credit are in a similar position as the counterfeiter. The early receivers of money become wealthier since they now have more money than before the increase in money took place.
The early receivers can now acquire a greater amount of goods while the prices of goods remain unchanged. The later receivers and the non-receivers of the inflated money and credit endure the burden of price increases, monetary devaluation, distortions in the price and production structure, boom-bust cycles, and a decline in their living standards. According to Rothbard,