Inflation Is a Tax

The Seen and the Unseen

Bastiat (Frederic Bastiat) presented the most important distinction in economics. The seen and the unseen.

When a window is broken, the glazier gets work. That is seen. The fact that the money would have been spent on shoes or books is unseen. If you only look at the seen, it seems like breaking windows is good for the economy.

Inflation is exactly like that. The seen — rising prices, rising asset values, the boom called “economic stimulus.” The unseen — purchasing power quietly draining from savings every year, involuntary wealth transfers, the price paid by the most vulnerable.

How It Works

Taxation is at least transparent. There is a law, a rate, and a notice. You know how much you are paying, and in theory, you can object through elections.

Inflation is different. No legislation, no notice, no rate. Yet the result is identical to taxation. Your wealth decreases without your consent.

The process goes like this. The government issues bonds to cover its deficit. The central bank buys those bonds with newly created money. The government spends this money — prices have not risen yet. As the new money spreads through the economy, prices gradually rise. The purchasing power of your money declines.

The key is timing. The government is the first user of new money. It can spend before prices rise. You are last. You feel the impact only after prices have already gone up.

graph TD
  GOV["🏛️ Government
Fiscal Deficit"] -->|"Issue Bonds"| CB["🏦 Central Bank"]
  CB -->|"Buy Bonds
(Print Money)"| SUPPLY["💵 Money Supply Increase"]
  SUPPLY --> INFLATION["📈 Price Increase"]
  INFLATION --> TAX["💸 Inflation Tax
(Savers Lose Purchasing Power)"]
  TAX -->|"Wealth Transfer"| GOV
  style GOV fill:#f85149,stroke:#f85149,color:#000
  style TAX fill:#f7931a,stroke:#f7931a,color:#000

The Cantillon Effect

The burden of inflation is not distributed equally. This phenomenon, observed by 18th-century economist Richard Cantillon, is the most unjust aspect of the fiat money system.

There are winners. The government spends new money first. Large financial institutions receive funds directly from the central bank. Asset holders watch their real estate and stocks rise faster than the currency depreciates. Large debtors find repayment easier as the real value of what they borrowed shrinks.

There are losers too. Wage earners’ paychecks always chase prices from behind. Savers watch their deposits lose purchasing power every year. Pensioners see their fixed incomes slowly erode.

Wealth is transferred from those without assets to those with them, from those without political power to those with it. It is the most extreme form of a regressive tax.

What Is Happening in Korea

Suppose a Seoul office worker saved 1 million won per month starting in 2015. Over ten years, that is 120 million won. With average annual interest of 2%, it grows to about 133 million won.

Over the same period, consumer prices rose about 20%. Something that cost 120 million won in 2015 requires about 144 million won in 2025. After ten years of diligent saving, real purchasing power actually declined.

Real estate is worse. In 2015, the average apartment price in Seoul’s Gangnam district was 800-900 million won. By 2025: 1.7-2 billion won. Someone who saved 1 million won per month for ten years is further from owning a home than they were a decade ago.

This is not a story about lazy people. It is a story about someone who worked hard, lived frugally, and saved steadily — being punished by the system. Ramyeon that cost about 700 won in the early 2000s is about 1,100 won in 2025. Coffee went from 3,000 won to 5,000 won. Everything went up. Wages did not keep pace.

”2% Inflation Is Healthy”

This is what mainstream economists and central banks repeat like a mantra. The Bank of Korea, the Fed, and the ECB all target 2% as their price stability objective.

Run the numbers. 2% per year means an 18% decline over 10 years. 45% over 30 years. 64% over 50 years. The reality hiding behind the word “stable” is that your lifetime savings will be more than half gone by the time you retire.

Why 2% and not 0%? The mainstream explanation is that “moderate inflation is needed to prevent a deflationary spiral where deflation expectations suppress consumption and investment during recessions.” But from the saver’s perspective, this is a structure designed so that holding money idle causes its value to decline, thereby incentivizing spending.

From the perspective of Austrian Economics, this is wrong at the root.

Falling prices are not bad. The natural result of technological progress is falling prices. Computers, smartphones, TVs — prices keep falling yet their industries keep growing. During the gold standard era from 1870 to 1900, the U.S. recorded its highest economic growth rates in history while prices gently declined. There were business cycle disruptions during this period too, such as the Panic of 1873, but overall living standards and industrial productivity steadily improved.

Artificial inflation distorts time preference. In a sound monetary system, people freely choose between saving and consuming. In an inflationary system, saving is punished. Going into debt to buy assets, or spending now, becomes the rational choice.

And the “2% target” is rarely actually achieved. Official CPI, after hedonic adjustments and substitution effect corrections, tends to be lower than the inflation people actually feel. Even if official inflation is 3%, take a shopping basket to the grocery store and it feels much higher.

Violation of Property Rights

From the libertarian perspective, inflation is a violation of property rights.

Money I earned through my labor is my property. Reducing its value without my consent is a violation. It is the most insidious form of what Bastiat called “legal plunder.” Taxation is at least written into law and requires parliamentary approval. Inflation follows no procedure at all.

Keynes warned in The Economic Consequences of the Peace (1919), citing Lenin’s views: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. Not one man in a million will diagnose the disease.” Ironically, the economics named after him uses precisely this mechanism as a policy tool.

From the Non-Aggression Principle, it is a clear violation. It differs from a thief reaching into your wallet in only two ways. The government does it legally. And most people do not even know it is happening.

The Exit

If inflation is a tax, Bitcoin is the door out of that tax.

Total supply: 21 million. No government can change it. Enforced by code and verified by tens of thousands of nodes worldwide. Holding sound money in the form of Bitcoin means being able to protect your own wealth without anyone’s permission.

Hold Korean won and you are tied to Bank of Korea policy. Hold dollars and you are tied to the Fed. Bitcoin is the first tool to escape that binding.

An invisible resistance to an invisible tax. Bitcoin is that resistance.