Fiscal redistribution spending causes inflation

Hans F. Sennholz, "The Causes of Inflation," Foundation for Economic Education, 5-1-1972, https://fee.org/articles/the-causes-of-inflation/-- 嘉玮

Welfarism and Inflation

Even the noblest politicians and civil servants can no longer be expected to resist the public clamor for social benefits and welfare. The political pressure that is brought to bear on democratic governments is rooted in the popular ideology of government welfare and economic redistribution. It inevitably leads to a large number of spending programs that place heavy burdens on the public treasury. By popular demand, weak administrations seeking to prolong their power embark upon massive spending and inflating in order to build a “new society” or provide a “better deal.” The people are convinced that government spending can give them full employment, prosperity, and economic growth. When the results fall far short of expectations, new programs are demanded and more government spending is initiated. When social and economic conditions grow even worse, the disappointments breed more radicalism, cynicism, nihilism, and above all, bitter social and economic conflict. And all along, the enormous increase in government spending causes an enormous increase of taxes, chronic budget deficits and rampant inflation.5

The “redistributive” aspirations of the voting public often induce their political representatives in Congress to authorize and appropriate even more money than the President requests. Such programs as social security, medicare, antipoverty, housing, economic development, aid to education, environmental improvement, and pay increases for civil servants are so popular that few politicians dare to oppose them.

The government influences personal incomes by virtually every budget decision that is made. Certainly its grants, subsidies, and contributions to private individuals and organizations aim to improve the material incomes of the beneficiaries. The loans and advances to private individuals and organizations have the same objective. Our foreign aid program is redistributive in character as it reduces American incomes in order to improve the material condition of foreign recipients. The agricultural programs, veteran’s benefits, health, labor and welfare expenditures, housing and community development, Federal expenditures on education, and last, but not least, the social insurance and medicare programs directly affect the incomes of both beneficiaries and taxpayers. As the benefits generally are not based on tax payment, but rather on considerations of social welfare, these programs constitute redistribution on a nationwide scale. Foreign aid programs have extended the principle of redistribution to many parts of the world.

Whenever government expenditures exceed tax collections and the government deficit is covered by currency and credit expansion, we suffer inflation and its effects. The monetary unit is bound to depreciate and goods prices must rise. Large increases in the quantity of money also induce people to reduce their savings and cash-holdings which, in the terminology of mathematical economists, increases money “velocity” and reduces money value even further. It is futile to call these people “irresponsible” as long as the government continues to increase the money stock.