Aside from natural disasters, human error, and private crime, what would account for the continual destruction of capital that keeps us from enjoying a better life? Claude Frédéric Bastiat (30 June 1801 – 24 December 1850) lays the blame on plunder, which he defines as “prohibiting, by force or fraud, freedom of exchange, in order to receive a service without rendering one in return.” [Economic Sophisms, p. 132] Improvement in the social order is held back by the “constant endeavor of its members to live and prosper at one another’s expense.” The plunder he describes receives both legal and moral sanction, and would today simply be called policy.
One policy he doesn’t discuss is government inflation, the act of increasing the money supply. As credit expansion, which entails the creation of deposit accounts from nothing (as a child playing make-believe might do), inflation destroys capital by promoting overconsumption and malinvestment. Since it erodes purchasing power, inflation undermines capital accumulation by discouraging savings. When the rate of inflation slows and the recession arrives, government inflates more aggressively in an attempt to avoid the necessary correction, which diverts capital from wealth producers to the recipients of the new money. As government grows, its appetite for revenue grows, putting pressure on the central bank to keep the printing press rolling and continue the cycle of boom and bust, and with it the destruction of capital.
“All economic betterment depends on saving and the accumulation of capital,” Mises stated repeatedly throughout his life. [Economic Freedom and Interventionism, p. 6] Inflation, which is a form of theft, is an enemy of prosperity because it “makes suckers out of savers,” to borrow Judy Shelton’s apt description, and weakens the pool of real funding.