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The Morality of Money, 6: Social Consequences of Inflation

By Thomas V. Mirus ( bio - articles - email ) | Nov 25, 2016

We have seen the damage inflation does to the common good primarily in terms of its strictly economic impact. But in The Ethics of Money Production, Hulsmann enumerates a great many ways in which inflation has been corrosive of social and moral life in the past two centuries, and it would not do to end this series without mentioning a few.

Inflation contributes to the increased centralization of governments, at the expense of local governments and intermediary institutions. It enables governments to wage more and longer wars without having to ask citizens to pay more taxes, and enables spending on other things citizens would not be in favor of. Inflation brings about moral hazard, causing recurring economic crises. Businesses borrow more because of the illusion of cheap credit, making business more dependent on banks and further concentrating economic power.

Inflation generally encourages not just businesses but individuals to borrow more rather than living within their means; the decreasing purchasing power of money discourages saving and makes more and more people dependent on investing and the vagaries of the financial market for their future security (since it will no longer benefit anyone to simply hoard cash for the future). More and more people’s financial strategies are based on debt—what Bernard Dempsey called institutionalized usury—and so more and more people are financially dependent, the moral consequences of which Hulsmann makes 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. [p. 185]

Clearly, then, these are not just material but spiritual consequences. The simplicity of traditional saving (unjustly maligned as “hoarding”) is replaced with the complexities and constant change of investment, meaning that people feel less secure and have to be constantly preoccupied with the state of their money. They feel the need to continue earning money later and later in life. They will be more likely to choose occupations that give them less spiritual satisfaction but more long-run monetary gains, and more likely to work far from home if it is financially advantageous to do so.

The lack of honest weights and measures where money is concerned—“everything is whatever it is called” [p. 188]—tempts us to be less than fully honest in other areas as well. If money prices for the same products are increasing year by year, in certain markets such as food and construction, inferior products will be sold under the same name in order to continue making a profit.

If the government has the ability to print money at will, and if the consequences of inflation include greater financial instability and dependency for individuals and families, then the result will be an ever-growing centralized welfare state—which, Hulsmann notes, indeed “went hand in hand with the explosion of public debt” in Europe since the early 1970s. The growth of the welfare state is a chief contributor to the deterioration of the family, as states assimilate function after function, whether it is care for the elderly or the intellectual and moral education of children. True compassion and charity decrease and dependence on enemies of the traditional family increases. The welfare state also subsidizes economically risky sexual behavior by insulating people from its consequences, thus leading people to think Christian sexual mores have no practical connection to the real world.

John Maynard Keynes wrote that “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”—though for the self-described “immoralist” Keynes, whose economic doctrine still bedevils us, this may have been a desirable result.


The Church and Austrian economists agree that “capitalism” as it has existed in the last century must be criticized. But in formulating such criticisms on a prudential level, today’s Church officials (unlike their medieval predecessors) have generally neglected to pay attention to the current monetary system as a tool of avarice and as a root cause of instabilities and inequities, instead favoring the application of band-aids on top of band-aids. A key implication of Hulsmann’s argument is that, in his words, “paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided” [p. 239].

As impossible as switching to a “natural monetary order” might sound at first, it need not entail a complete dismantling of modern economic mechanisms and institutions. What is necessary is that the special legal privileges of central banks and other monetary institutions be revoked. When citizens are simply allowed to use whatever kind of money they prefer, the rest of the reform will be sure to follow.

And monetary reform is not impossible even at this late date. It has occurred many times throughout history: Hulsmann cites the example of China, which, after five hundred years of experimenting with fractional-reserve banking and paper money and the consequent repeated hyperinflations, finally achieved monetary stability when, in the fifteenth century, the government stopped suppressing silver and copper coins. In the High Middle Ages, the merchants of northern Italy, dissatisfied with the debased silver coins then dominating the monetary scene, began producing sound gold coins to use in their own circles, which, tolerated by governments, eventually were widely used across much of Europe. And in the United States, Andrew Jackson fought successfully against fractional-reserve banking privileges and reduced the public debt from $60 million to $33,733.05.

Monetary reform, Hulsmann emphasizes, is mainly a matter of the will.

Previous in series: Moral Hazard and Malinvestment

The Ethics of Money Production may be purchased in hardback from its publisher, the Mises Institute, at a third of the Amazon price, or, like all of the Institute’s publications, downloaded for free as a PDF or ebook.

Thomas V. Mirus is Director of Podcasts for, hosts The Catholic Culture Podcast, and co-hosts Criteria: The Catholic Film Podcast. See full bio.

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