Walter E. Williams

The founders of our nation feared paper currency because it gave government the means to steal from its citizens. When inflation is unanticipated, as it so often is, there's a redistribution of wealth from creditors to debtors. If you lend me $100, and over the term of the loan prices double, I pay you back with dollars worth only half of the purchasing power they had when I borrowed the money. Since inflation redistributes (steals) wealth from creditors to debtors, we can identify inflation's primary beneficiary by asking: Who is the nation's largest debtor? If you said, "It's the U.S. government," go to the head of the class.

Inflation is just one effect of massive increases in spending. Some might argue that future generations of Americans will pay for today's massive budget deficits. But is there really a federal budget deficit? The short answer is yes, but only in an accounting sense -- but not in any meaningful economic sense. Let's look at it. Our GDP this year will be about $14 trillion. If 2009 federal expenditures are $3.9 trillion and tax receipts are $2.1 trillion, that means there is an accounting deficit of $1.8 trillion. Is it the Tooth Fairy, Santa or the Easter Bunny who makes up the difference between expenditures and revenue? Is it a youngster who is born in 2020 or 2030 who makes up the difference? No. If government spends $3.9 trillion of our $14 trillion GDP this year, of necessity it has to force us to spend privately $3.9 trillion less this year. One method to force us to spend less privately is through taxation. Another way is to enter the bond market and drive up the interest rates, which put a squeeze on private investment in homes and businesses. Then there is inflation, which is a sneaky form of taxation.

Profligate spending burdens future generations by making them recipients of a smaller amount of capital and hence less wealth.

Walter E. Williams

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of 'Race and Economics: How Much Can Be Blamed on Discrimination?' and 'Up from the Projects: An Autobiography.'
TOWNHALL DAILY: Be the first to read Walter Williams' column. Sign up today and receive daily lineup delivered each morning to your inbox.