The expansion of the money supply is often presented as an essential tool of economic policy, aimed at stimulating growth or managing public debt. However, critical analysis reveals that this mechanism can be interpreted as an asymmetric transfer of wealth, effectively amounting to a hidden or silent tax.

1. Money creation and real wealth: a fundamental dichotomy

The premise of this criticism is based on the fundamental distinction between money (a claim on wealth) and real wealth (the goods and services produced that meet needs).

• The myth of instant wealth: the simple creation of money ex nihilo by a central authority (the government or the central bank) does not increase the productive capacity of the economy, i.e., the quantity of real goods available (the economic "pie"). The analogy is clear: issuing more tickets to access a limited stock only dilutes the value of each ticket.
• The inflation formula: injecting new money into a system whose resources remain constant directly results in a decline in the intrinsic value of the monetary unit. This phenomenon, known as inflation, mechanically requires a greater amount of money to acquire the same quantity of goods.

1. The Cantillon effect: the transfer mechanism

The spread of inflation is neither instantaneous nor uniform. It follows a specific economic path, a concept that economists call the Cantillon effect, named after the economist Richard Cantillon (1680-1734).

Cantillon is often considered the first to have described the uneven and sequential impact of the introduction of new money, which is at the heart of the idea of a silent tax.

1. Beneficiaries close to the source (the winners)

Those who receive the newly created money first (usually the government, financial institutions, and large companies benefiting from public contracts) enjoy a decisive time advantage:

• They spend the money before prices have had time to adjust to the inflation created by this injection.
• Their purchasing power is therefore temporarily multiplied: they can acquire assets or real goods at the old prices, benefiting from a non-consensual transfer of value from the rest of the population.

According to Cantillon: "The increase in money... gives an advantage to those who receive it first and puts those who come after at a disadvantage."

1. Remote actors (the losers)

As this new money circulates and spreads, it gradually pushes up prices.

• Those who receive this money last (particularly small and medium-sized businesses and, above all, employees and retirees on fixed incomes) bear the brunt of inflation.
• They buy at prices that have already increased, while their incomes are only adjusted later, if at all. Their real purchasing power is therefore eroded, which is the source of funding for the advantage granted to the first beneficiaries.

III. Hidden Taxation: A Question of Legality and Morality

Our analysis leads to a critique of the ethical and legal nature of this operation.

The mechanism of money creation is described as a hidden tax because it reduces available wealth (lowering purchasing power) and transfers this value to the state and its partners, all without a legislative vote or visible entry on pay slips.

1. Milton Friedman

Nobel Prize-winning monetarist economist Milton Friedman clearly denounced inflation as a form of government taxation. He wrote: "Inflation is the only form of taxation that can be imposed without legislation. "

This quote perfectly sums up the hidden nature of inflationary taxation. It operates through currency devaluation rather than through legislation.

1. Murray Rothbard

Murray Rothbard developed this critique in his famous pamphlet, State, What Have You Done to Our Money?

He writes: "Inflation, in essence, is expropriation, a tax, whereby the government and its beneficiaries receive the new money first, enjoying the gains in wealth before prices rise."

In the thinking of the Austrian school of economics, state money creation is morally equivalent to theft or counterfeiting: both acts consist of creating debt securities without any productive basis, diluting the value of the money held by others for the benefit of the initial beneficiaries.

The comparison with counterfeiting is striking. The technical act of issuing money without creating underlying wealth is identical whether the perpetrator is the state (conducting economic policy) or a citizen (committing a crime). The only difference lies in the legal authority to issue that money.

Conclusion: a redistribution of wealth without consent

The political and semantic tour de force consists in getting people to accept a form of monetary spoliation (the theft of purchasing power) as a legitimate and benevolent economic measure.

The central question for public and philosophical debate therefore remains: isn't monetary policy, in essence, a hidden tax that has not been voted on and that redistributes wealth in an undemocratic manner?

Resources

Murray Rothbard, What Has Government Done To Our Money: https://planb.academy/fr/resources/books/what-has-government-done-to-our-money-bfc4b0eb-2da0-4a89-bfae-80e8e39425f6

Further reading

HIS 204 The Origins of Laissez-Faire Economics, in particular the chapter:

2.4. Cantillon

HIS 205 History of Coinage, in particular the chapters:

6.5. Modern Monetary Theory

7.5. Links between Monetary Dilution and Inflation: From Causes to Consequences

8.1. The Evolution of Global Reserve Currencies

ECO 104 Introduction to Bitcoin & Stablecoin, in particular chapter

3.3. What makes Bitcoin different from fiat?

ECO 201 Fundamentals of the Austrian School of Economics, in particular the chapter:

1.2. Money, Credit, Banks, and Central Banks

ECO 204 Hyperinflation Case Studies, in particular chapters:

2.1. A Monetary Phenomenon

2.2 Types of Inflation