The Importance of Monetary Inflation

An increase in the supply of money by a central bank is not wealth generating, it is wealth redistributing. As the new money percolates through the economy, it puts upward pressure on prices as more dollars compete for an unchanged supply of goods and services. The higher prices that result from an expansion of the money supply lowers everyone else's purchasing power. Like any form of taxation, therefore, a monetary inflation is a wealth transfer from the citizenry to the state.