To begin with, almost all governments obtain the bulk of their revenues through taxation which, regardless of its particular form, ultimately involves — indeed, is definable as — a coerced levy upon the monetary incomes or assets of its citizens, i.e., the net taxpayers. However, whatever ethical or practical considerations may be brought forward to justify taxation, since it is essentially coercive, tax increases have always found little favor among the citizenry So, ever fearful of arousing popular unrest, governments naturally sought alternative means for augmenting their revenues from taxation. It was for this purpose that all national governments eventually secured for themselves a legal monopoly of issuing money, empowering them to inflate, i.e., to create new money, virtually at will.
Especially under today’s various national fiat‐money standards, inflation provides a relatively simple, costless, and secure means for amassing money assets. In substance, all a government needs to do to increase its real income is slap some ink on paper and spend the proceeds on commodities and services produced by the private market. In this way, the national government is able to divert scarce resources from private uses and utilize them for its own purposes, while circumventing the popular discontent which invariably accompanies an overt imposition of higher taxes. Actually, in the world of modern monetary and financial institutions and practices, inflation entails a much more arcane process than the mere printing and spending of new units of currency This fact obscures the true cause of inflation from the public and permits the government to shift the blame for the monetary unit’s shrinking purchasing power and other undesirable consequences of inflation from itself to other groups or to circumstances beyond its control. These include OPEC, monopolistic corporations, powerful labor unions, spendthrift consumers, unfavorable weather conditions. etc.
It should be no surprise, then, that all government‐monopolized fiat moneys exhibit symptoms of inflationary disorder — just as it is no surprise when other groups in the economy exploit the monopoly privileges granted them by law to increase their money incomes, e.g., via tariffs, occupational licensure, exclusive public franchises, etc. Indeed, it is a general lesson of history as well as a rule of common sense that an individual or group endowed with a legal monopoly over any area of the economy will use it to its own pecuniary advantage. To put it rather bluntly, government is an inherently inflationary institution and will ever remain so until it is dispossessed of its monopoly of the supply of money.
Indeed, lately an increasing number of economists have come to regard inflation as a necessary consequence of the political control of money. Most prominent among them is F. A. Hayek, Nobel laureate in economics, who has forcefully argued that the recurring bouts of macroeconomic instability which have always afflicted market economies are “a consequence of the age‐old government monopoly of the issue of money.” According to Hayek, furthermore: