The Temptation of Power – Part 7: Inflation – The Tax Nobody Votes For

Most people understand taxation.

Governments announce new tax rates.

Parliament debates them.

Citizens complain about them.

They are visible.

Inflation is different.

Almost everyone notices rising prices.

Far fewer stop to ask why their money buys less than it once did.

A loaf of bread costs more.

Electricity becomes more expensive.

Fuel prices rise.

A weekly shop costs noticeably more than it did only a few years earlier.

The usual explanation is simple.

Prices have gone up.

Yet that is only half the story.

The other half is that the purchasing power of money has gone down.

A pound still bears the same name.

It simply buys less.

The result is subtle.

No new tax bill arrives through the letterbox.

No parliamentary vote announces that your savings have lost value.

Yet the effect is real.

Every pound you have earned over many years purchases slightly less than it once did.

Those who have spent years building savings discover that the value of those savings quietly diminishes.

Those living on fixed incomes find that each year requires more careful budgeting.

Meanwhile, those who owe large sums of money often find that inflation reduces the real value of their debts over time.

Inflation does not affect everyone equally.

It redistributes wealth.

This is one reason why inflation deserves far greater public attention than it usually receives.

Unlike most taxes, it is difficult to see.

Unlike most taxes, few politicians campaign openly in its favour.

Unlike most taxes, many people accept it as though it were an unavoidable feature of modern life.

Perhaps it is.

Perhaps some inflation is an inevitable consequence of a growing economy.

Economists continue to debate these questions.

My concern lies elsewhere.

Inflation demonstrates how government can influence the lives of every citizen without introducing a single new tax.

If government spending expands faster than the economy can sustainably support, difficult choices eventually follow.

Borrow more.

Raise taxes.

Reduce spending.

Or allow the value of money itself to decline.

Each choice has consequences.

None is painless.

This brings us back to the principle established in the first article of this series.

Every power creates opportunities.

The power to influence a nation's money is among the greatest powers any government possesses.

Like every other power, it should be approached with caution.

Inflation does more than alter prices.

It changes behaviour.

People become less willing to save.

Borrowing appears more attractive.

Long-term planning becomes more uncertain.

The habits that once encouraged prudence gradually weaken.

Over time, society begins to expect rising prices as normal.

The extraordinary becomes ordinary.

That should concern us.

Stable money encourages confidence.

People save for the future because they expect their savings to retain value.

Businesses invest because they can plan ahead.

Families make long-term decisions with greater certainty.

Inflation weakens those assumptions.

Its effects are gradual rather than dramatic.

That is precisely why it is so easily ignored.

No single year appears catastrophic.

Yet over decades the cumulative effect can be profound.

Governments often speak proudly of economic growth.

But genuine prosperity is not simply measured by the number of pounds changing hands.

It is measured by what those pounds are capable of purchasing.

If the value of money steadily declines, apparent prosperity may conceal a quieter reality.

People work harder merely to maintain the standard of living they once enjoyed.

Whether inflation is always avoidable is a question for economists.

Whether its consequences deserve greater public scrutiny is a question for all of us.

For if taxation openly transfers wealth through legislation, inflation may achieve similar effects so gradually that many people scarcely notice until years have passed.

And that may be one of the greatest powers any government can possess.