Inflation Tax, WIki definition
http://en.wikipedia.org/wiki/Inflation_tax
"
An inflation tax is the economic disadvantage suffered by holders of cash and cash equivalents in one denomination of currency due to the effects of expansionary monetary policy, which acts as a
hidden tax that subtracts value from those assets. Many economists hold that the
inflation tax affects the lower and middle classes more than the rich, as they hold a larger fraction of their income in cash, they are much less likely to receive the newly created monies before the market has adjusted with inflated prices, and more often have fixed incomes, wages or pensions. Some argue that inflation is a regressive consumption tax. [1]
"
From this website...
http://austrianeconomics.wikia.com/wiki/Inflation
"David Hume, in order to demonstrate the inflationary and non-productive effect of paper money, in effect postulated what Rothbard called the "Angel Gabriel" model, in which the Angel, after hearing pleas for more money, magically doubled each person's stock of money overnight. (In this case, the Angel Gabriel would be the "counterfeiter," albeit for benevolent motives.) While everyone would be happy from their seeming doubling of monetary wealth, society would in no way be better off: there would be no increase in capital or productivity or supply of goods. As people rushed out and spent the new money, the only impact would be an approximate doubling of all prices, and the purchasing power of the money would be cut in half, with no social benefit being conferred. An increase of money can only dilute the effectiveness of each unit of money.
In real life, the very point of counterfeiting is to constitute a process of transmitting new money from one pocket to another. Whether counterfeiting is in the form of making brass or plastic coins that simulate gold, or of printing paper money to look like that of the government, counterfeiting is always a process in which the counterfeiter gets the new money first.
In short, the early receivers of the new money in this market chain of events gain at the expense of those who receive the money toward the end of the chain, and still worse losers are the people (e.g., those on fixed incomes such as annuities, interest, or pensions) who never receive the new money at all. Monetary inflation, then, acts as a
hidden "tax" by which the early receivers expropriate (gain at the expense of) the late receivers. As the
earliest receiver of the new money is the counterfeiter's gain is the greatest. This tax is particularly insidious because it is hidden, few people understand the processes of money and banking, and because it is all too easy to blame the rising prices, or "price inflation/' caused by the monetary inflation on greedy capitalists, speculators, wild-spending consumers, or whatever social group is the easiest to denigrate. Obviously, too, it is to the interest of the counterfeiters to distract attention from their own role by denouncing any and all other groups and institutions as responsible for the price inflation.[11] "
http://www.drlwilson.com/Articles/INFLATON.htm
http://ezinearticles.com/?Inflation---The-Hidden-Tax&id=4958979
You both acknowledge that increases in the money supply result in inflation (The decrease in purchasing power of each individual monetary unit) and then argue that people who took out no debt, are as wealthy as they were before. If the same amount of money now buys less, how have I not lost out? There are no more goods and services in production. I still have to compete with the lender for the same amount of goods and services, yet now he can outbid me with the newly created money.
A transfer of wealth DOES happen. Person A who took out the loans has MORE money, the dilution of purchasing power doesn't rest on him only, it rests on ALL the holders of the currency.
Thus if Person A gets more money from thin air, then person B loses purchasing power.
How did person A get more money, by simply printing more.
Person A is in fact the state and any large corporations who can take out large loans that increase the money supply and person B is everyone with currency.
Maybe I should put it in simpler terms.
2 people in an economy. Each has a R1000. Now person A, suddenly prints more money for himself.
So now we have R3000 in total, chasing around the same amount of goods and services. Prices rise, this is inflation.
So I had a R1000. It could be lets say 10 Fiat Uno's. No since inflation has taken its course, my R1000 can only buy 6 Uno's as it has lost purchasing power. The guy who has R2000, can buy a lot more.
So the people who get loans, benefit. Who gets the largest loans, particularly from the central bank. The state. Which can then hand out money to corporatations that support the states goals, ones that make armaments for example. (Military Industrialo Complex), in fact ANY corporation that gets funds from the state benefits.
There is no EXTRA wealth unless goods and services increase. I lose purchasing power, others gain. Despite the fact the state also loses purchasing power per unit, the loss in purchasing power is spread over every currency holder, not just the state.
