The Pseudo Tea Parties and the Myth of Inflation

by H. Goldman

Today, a few disgruntled Americans (their numbers cannot be accurately quantified due to the media's distortion of the events) marched through cities, throwing bags of tea into every body of water that they could find to protest the economic stimulus package, the buying of bad bank assets, etc. Aside from the historical inaccuracies (our founding fathers conducted the Boston Tea Party to demonstrate that they would not buy over-taxed commodities without Parliament representation, not to protest government intervention in the markets,) the "tea demonstrators" forgot that they would end up with a net loss of income by buying something of value (the tea) and dumping it into lakes, rivers, etc. without ever using it (the tea used in the Boston Tea Party was in the process of being shipped to the colonies. Therefore, our founding fathers spent nothing to acquire the tea.) Thus, paradoxically, by protesting the perceived waste of their money by the government, they wasted their money. In another paradox, the protestors were quite evidently protesting the government's influence and existence by inaccurately mimicking a protest of the fact that there was no high government that the colonies could call their own.

I probably should not be giving coverage to the conservative "tea parties," but they seem to represent a much larger issue, one that has both caused liberal politicians to be reluctant to nationalize the banking system (which, in my opinion, is what needs to happen to get credit moving again,) and caused conservative politicians to decry every spending measure in the name of "fiscal responsibility." This issue is what I call the "myth of inflation," and it has existed ever since FDR abandoned the "gold standard" in the early phases of the Great Depression.


Inflation is, essentially, the decrease in the value of a currency due to a large supply of that currency. Hence, due to an increase in the number of dollars in circulation, prices, taxes, etc. will increase naturally. This process is regularly denounced by both Republicans and Democrats as something that can wreak economic havoc, so our government only uses it as a last resort. Instead, we use deficit spending methods (which are only denounced by Republicans, who can't seem to find a solution to the illusion that is the problem with well conducted inflation.) These methods require the U.S. to borrow currency via either 1.) taxation or 2.) the borrowing of money from other countries, with the latter being used so much that the former is not to be worried about (even though people worry about it anyway.) The new problem that arises from this method is national debt, which has been steadily climbing since President Bush invaded Iraq.


All of the aforementioned problems, as well as the "tea parties," arise from a lack of understanding of what inflation is and what it derives from. In the words of Niall Ferguson's book The Ascent of Money, our currency is "little more than numbers on a computer screen." For this reason, we can print as many dollars as we want for less than that dollar is worth, for the value of the dollar is the product of our perception. In other words, we perceive the dollar to have a value that is greater than the value of the paper and ink that is used to create it. Thus, since the dollar does not represent the value of gold anymore, it is impossible for government expenditure to be wasteful unless we attempt to quell inflation with loans from other nations, for taxation is not a loan, nor is it a bad thing if conducted correctly (by increasing the tax rate on the wealthiest Americans, while keeping the tax rate on everyone else the way that it is.)

Moreover, if used with taxation as a means for government expenditure, inflation can be a very valuable tool, for, if the government increases the amount of dollars in circulation to pay for a given program but simultaneously increases the minimum wage by the same degree by which the value of the dollar decreases, prices will balance with income as if the expenditure never occurred. Of course, to do this requires a large amount of legislation and little room for error, but, if balanced with taxation, inflation will only have to be used with large bills.