Conceived in Liberty Volume 2 - Ludwig von Mises Institute

"dollars" or "pounds" or "francs," which do not at all represent actual
weights of the money commodity. As a result, all the users of the money will
be hurt and will find their money declined in value. In fact, the market will
quickly tend to depreciate the paper money or banknotes in relation to genuine
money, and this might happen even if government bolsters the use of
money by force (for example, by declaring it legal tender).
Creation of paper or bank money ("inflation"), therefore, confers a special
privilege on some groups, at the expense of the producers and at the expense
of the society's money. The groups that benefit include the first issuers and
receivers of the new money, those who sell to them, and generally those
whose selling prices rise because of the inflation before a rise in the prices of
the goods they have to buy. These groups gain by imposing losses on those to
whom the new money is the last to trickle down, that is, those whose buying
prices rise before the prices of the goods or services they have to sell. Debtors
always gain from the rise in prices caused by inflation; they can then pay back
their loans in money of lower purchasing power than they had borrowed.
Furthermore, if the new money is loaned out by government or banks, debtors
may benefit from the artificially low interest rate on the loan. Creditors, conversely,
are always among the groups injured by inflation, for they receive the
inferior money, and interest return on further loans is artifically lowered if
the new issue appears on the loan market. Landowners generally benefit from
inflation. Land prices usually rise more rapidly than most other prices, and
lowered interest rates have a particularly strong impact in raising the values of
an extremely durable good such as land. Since landlords, especially speculative
landlords, are often debtors as well, they have a multiple incentive for favoring
inflation. Land speculators who borrow to invest in large tracts of virgin
land have particularly gravitated toward the vanguard of the advocates of
inflation.
American historians, recognizing the interests of debtors in promoting
inflation as a subsidy for themselves, have generally made a grievous error in
applying this insight to the American past. They have assumed that debtors
and creditors are fixed, identifiable classes and that debtors have consisted of
poor farmers, and creditors of wealthy urban merchants. The fallacies in this
disastrous typology are numerous. Debtor and creditor refer not to fixed occupational
categories. A man is not born into the status of debtor or creditor,
and anyone may shift continually from one category to the other—or to neither
one. Farmers may be in debt or out of it, and may even be creditors.
Merchants are notoriously creditors and debtors both—and they may shift at
any time from a net-creditor to a net-debtor position, or vice versa. And debtors
are not necessarily poor. Indeed, it is precisely the wealthy who generally
go most heavily into debt. After all, poor people generally do not possess a
very good credit rating, and therefore are not often able to borrow even if
they want to. Landowners are often debtors, but they may more likely be
wealthy land speculators than dirt farmers.
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