Monetary base expansion emerged as a military "technology." In times of war, public spending exploded and it was impossible to raise taxes to cover war expenses.
The solution was to impose on the population a legal tender, through the threat of police and military violence, and to use the creation of money out of thin air to cover the government's expenses.
The system worked in its goal of enabling the government to spend the impossible and to put all of society's resources at the disposal of the government. However, a series of side effects have been created in society:
- Widespread price increases.
- Distortion of the relative price of goods, services and wages.
- Artificial reduction of the interest rate.
- Business cycles, as a logical result.
- Artificial enrichment of people linked to the state through the artificial impoverishment of productive people.
- Increased time preference of the population.
Degradation of the quality of products and services.
When the monetary base expands, the logical consequence of the oversupply of money in society is that money depreciates relative to the goods and services offered. It's a simple matter of supply and demand, applied to money.
However, people in society understand money as a rigid measure of purchasing power, even those who understand and study the operation of fiat money, when going to the supermarket, only think about what their money in their wallet can buy.
People expect their purchasing power, if it cannot be increased, to at least remain unchanged month by month, and this expectation ends up reflecting in their choices as consumers, and consumer choices reflect throughout the production chain of goods and services.
It is clear that the passing on of prices to the consumer is a business policy that will result in the loss of customers. The market requires producers to choose inferior raw materials and services in the production process in order to preserve the final price to the consumer. And anyone who refuses to follow this trend will quickly be practicing out-of-market selling prices and bankruptcy would be inevitable.
The increase in prices caused by the expansion of the monetary base is not so drastic precisely because the products and services offered in the market are losing quality and durability as a natural way of not making people's lives quickly much poorer and without resources.
While this tendency alleviates the immediate problems of the population, it naturally generates a great long-term impoverishment, since it is precisely in the long run that the loss of durability and quality of goods is felt, reflecting the increase in the time preference of the population derived from the expansion of the monetary base.
The degradation of goods and services only confirms the signature of Keynesian ideology, consuming in the present and leaving nothing for the future. This kind of degradation of society we are presented with the imposition of a legal tender. How long are we going to work for money that can be printed to the taste of the establishment?