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"But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime." - Frederic Bastiat, The Law

There is nothing inherent in a free market price system that causes rapid increases or decreases in prices as a whole. Inflation is defined as an artificial increase in the supply of money - usually when a government or central bank decides to introduce money substitutes (such as fiat paper money) in place of sound money. The artificial increase of the money supply tends to lead to higher prices. As more money is introduced to the system, the amount of money it takes to buy the same goods and services tends to rise. This is price inflation. Today, people equate inflation with higher prices (price inflation). However, this view only considers the effect without reference to the cause.

Why does government have incentive to run inflationary policy? Well, there are a few reasons, but here we are going to focus on wealth expropriation. The three basic ways that governments have historically obtained resources from the people have been 1) levying taxes, 2) issuing debt, or 3) confiscating wealth by means of monetary inflation. The first two are more visible to public scrutiny than the third. Inflation, if held to moderate levels, largely goes unnoticed. It is a hidden tax that most people do not understand and hence has been a favorite means of government expropriation for hundreds of years.

• Want more information about how inflation works?  Here's a great analogy: Jaguar Inflation. A free audio download of Jaguar Inflation can be found here. 

Expansion of the money supply does not affect all members of the economy evenly. This uneven impact makes inflation a great hidden means to transfer wealth to the government and to the politically connected, those with special government privilege. For centuries, governments have confiscated real wealth from citizens by slowly debasing the currency.

Inflation, however, is most harmful to the people who can least afford it, such as the poor and the elderly on fixed incomes. According to Bettina Bien Greaves in the essay Inflation Destroys Savings, "Everything that is done by a government against the purchasing power of the monetary unit is, under present conditions, done against the middle classes and the working classes of the population. Only these people don't know it. And this is the tragedy. The tragedy is that the unions and all these people are supporting a policy that makes all their savings valueless. And this is the great danger of the whole situation."

• Read more: Inflation Destroys Savings - Ludwig von Mises - Mises Daily http://mises.org/daily/4408#ixzz0oJMl8luy

Again, inflation is an efficient method for the government to legally steal resources from the people as long as it it kept to moderate levels. In situations like the present, the government runs the risk of generating a massive uprising of adverse public opinion when it exercises monetary policy that creates a very real risk of hyperinflation and the increasingly likely risk of the destruction of our monetary system altogether.

• “Since the United States went completely off gold in August 1971 and established the Friedmanite fluctuating fiat system in March 1973, the United States and the world have suffered the most intense and most sustained bout of peacetime inflation in the history of the world.” - Murray Rothbard, What Has the Government Done to Our Money?

• “Adjusted for real inflation, the average American is now worth less than 30 years ago. The average American has been earning less per hour (adjusted for real inflation) and seeing a decline in their standard of living since the early 1970s after we left the gold standard.” - The National Inflation Association
  

The M1 and M2 are measures used by the Federal Reserve to track the stock of money. In very simplified terms, the M1 consists of demand deposits, currency outside the U.S. Treasury, and currency in the Federal Reserve Banks. M2 consists of M1 plus savings deposits, small-denomination time deposits, and balances in retail money market mutual funds.

“[Inflation's] siren music has tempted one nation after another down the path of economic disaster... Money does not equal wealth. So powerful is this confusion that it is the chief proposal today to jump start an economy. You cannot increase purchasing power by printing more paper.” - Henry Hazlitt, Economics in One Lesson

This is essentially the rate banks charge each other for overnight loans. It has been held at or near 0% for over a year and a half now.

“Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears the hardest on those least able to pay.” - Henry Hazlitt, Economics in One Lesson

Banks are choosing not to lend out money to the fullest extent allowed under federal reserve requirements.  Because banks are concerned about the risk of defaults they are holding over $1 trillion in excess reserve deposits. As you can see by the chart below, the current differential is at an unprecedented level.  If the economy continues to struggle, banks will continue holding excess reserves.  If the economy recovers, the banks will begin lending this money again, and $1 trillion will be reintroduced into our fractional reserve system.  Accounting for the multiplier, $1 trillion has the potential to turn into $10 trillion.  Economic recovery equals inflationary checkmate.

See AmericanlyYours.com for more information about How An Economic Recovery Could Become An Economic Catastrophe.

Click on the image below to view an incredible illustration of the history of the purchasing power of the US Dollar.  Sean Malone provides explanations of historical events driving the the rise and fall of the dollar's purchasing power.

Video is courtesy of the National Inflation Association.  This is an excellent video featuring Gerald Celente, Peter Schiff, Ron Paul, Marc Faber, Jim Rogers, and Tom Woods.  It would behoove Americans to take a night off of watching American Idol and watch this video.
  
"The NIA believes the largest financial crisis in history is ahead of us as a direct result of the U.S. government unwilling to accept a much needed recession. We are now at a point where our national debt is impossible to pay off. Due to rising interest payments on our national debt, it is unlikely the U.S. will be able to balance its budget ever again. Foreigners will eventually stop lending the U.S. money and the Federal Reserve will most likely have to print the money to fund our deficit spending out of thin air.  Our goal is to help as many Americans as possible become aware of the disaster we are rapidly approaching. In our opinion, the wealth of most Americans could get wiped out during the next decade..." - National Inflation Association

According to the United States Department of Treasury, and I quote: “In free societies, the goals of government have been to protect individual freedoms and to promote the well-being of society as a whole. To meet their expenses, governments need income, called "revenue," which it raises through taxes. In our country, governments levy several different types of taxes on individuals and businesses. The Federal Government relies mainly on income taxes for its revenue.”

In other words, the government is saying that in order to protect individual freedoms it must first use force to violate individual freedoms and basic human rights in order to fund its operation. In the same sentence, the government claims to promote the well-being of society as a whole by implementing a policy of wealth destruction. Taxes “...invariably reduce production and with this the consumer's standard of living.”(1)

Whether or not you believe that it is socially just to redistribute wealth from those that produce to those with government-granted special privilege, it is an economic fact that any taxation must negatively affect production, impede society's ability to create wealth, reduce the consumer's standard of living, and result in “relative impoverishment”. (1)

In the Economics and Sociology of Taxation from The Economics and Ethics of Private Property, Hoppe explains how taxation decreases the marginal utility of production and voluntary exchange and increases the marginal utility of leisure and consumption by raising the marginal time preference. This may seem technical, but essentially Hoppe is saying is that an increase in taxes gives people incentives to consume now and discourages capital, wealth generating investments.

“Every act of taxation necessarily exerts a push away from more highly capitalized, more productive production processes in the direction of a hand-to-mouth existence.” (2)- Hans-Hermann Hoppe, The Economics and Ethics of Private Property

(1) Hoppe, p. 49
(2) Hoppe, p.42

Interested in learning more about the history of taxes in America?  Here is an interesting article by Charles Adams - Brief Tax History of America.

Using data from the Tax Foundation this chart was constructed to show the tax burden on the average American since 1910. Obviously, some Americans pay less taxes and some pay more. However, on average in 2010 Americans worked until April 9th to pay the burden of government taxes. If taxes were not spread out and were collected at the beginning of the year, this would mean that on average Americans would not be permitted to begin keeping the fruits of their labor until the fourth month of the year. It is difficult to imagine a system where 1/3 of our wealth is not forcefully expropriated in order fund special interest projects. How did our nation survive with a tax burden of 5% or less?

The chart above shows that the tax burden on the average Americans has steadily risen.  But what is the effect of raising taxes on government revenue.  In April of 2009, AmericanlyYours.com answered this question in an explaining Why Income Taxes Should Be Lower. This article referenced Hauser's Law stating that “...no matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5 percent of GDP.”

Hauser's Law is not a secret, but it seems to raise a very interesting question that the current administration ignores or has not asked:

Is it possible for a raise in the tax rate to increase government revenues and not hurt the economy?

The answer, according to Hauser's Law, is no!

According to the public policy research center, Hoover Digest – Sanford University:

“What happens if we instead raise tax rates? Economists of all persuasions accept that a tax-rate increase would reduce GDP, in which case Hauser’s law says it would also lower tax revenue. That is a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice...Economics is often poisoned by political wishful thinking. Taxation is an important example.”

 

Do the tax protesters today have a real gripe, or are these just people who do not want to pay their fair share? Some people are unhappy with the specific programs on which taxes are being spent.  Other people are unhappy with the amount of government spending.  While both camps may have valid reasons for frustration, they are accepting the thesis that it is acceptable for the government to forcefully expropriate wealth and then decided to whom it chooses to redistribute that wealth. The institution of government encourages citizens to argue over the surface-level issues of "to whom" or "how much" without challenging the principles of taxation. This furthers the culture of dependence on government when principles are compromised; leaving everyone fighting for their special interests to get a peace of the pie.

The justifiable protest of taxation on the grounds of life and liberty is that taxation violates human rights and is inevitably destructive to an economy. The principle of taxation is illegitimate from an ethical and an economical efficiency standpoint. This is not to say that a reduction of taxes from 30% to 10% should not be encouraged. It merely suggests that a compromise of reducing taxation to 10% should not be accepted as a principled goal.