The writer argues that inflation is theft and is the result of increased money supply which in turn erodes purchasing power
Inflation in the mainstream is described as the general rise in prices in an economy. This general rise in prices is the most unjust phenomena of the modern day and our continued acceptance of it makes us complicit in injustice.
Inflation is the increase in the money supply of a given economy, without the productive capacity necessary to justify the increase of said money supply in the first place. Even mainstream economists are willing to concede that the actions of central banks, in the form of increasing the money supply, do cause inflation.
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Described simply, inflation is the devaluation of currency; specifically, of the purchasing power of a given currency through artificially increasing its supply in the market. Think of what R20 buys you today and what that R20 will buy you more goods in the next year. If yes, then the currency is increasing in value. If it will buy less, then the currency is being devalued.
This phenomenon is not a “given”, nor a natural occurrence that cannot be explained – it is caused by central banks.
One must be careful to not fall into the mistake most commentators make. The mistake is to describe inflation as a general rise in prices.
In truth, the rise in prices is an effect of the inflation of the monetary supply of a jurisdiction
Therefore, understood properly, inflation is what the South African Reserve Bank does when it decides, on no one’s express authority, to increase the money supply.
The Constitution that governs the South African Reserve Bank was passed in 1996; since 1996 the value of the rand has been eroded by 337.91%. This means that if you bought something in 1996 for R100, that thing will now cost you R437.91
In Section 224(1) of the Constitution, the Reserve Bank is charged with protecting the value of the South African currency. This is a mandate the Reserve Bank has failed at, as is proven by the devalued purchasing power of the Rand since 1996.
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Another concerning reality is the rhetoric from political parties regarding the activities of the South African Reserve Bank, wherein the increase in interest rates is chastised. We have seen this in statements condemning the increase in interest rates from the ANC, the EFF, and the DA too.
Some aspect of this rhetoric is welcomed, since interest rates are not the cause of inflation but rather money supply is. Therefore, neither increasing nor decreasing them – with the aim of trying to arrest inflation as is cited by the Sarb – is a viable solution for the purchasing power of South Africans being eroded.
Zimbabwe is a stark example of how misguided the idea is that high interest rates can stop inflation. Zimbabwe has the highest interest rate in Africa, combined with one of the highest rates of inflation
Therefore, the political parties are correct to deride the Sarb when it increases interest rates, yet they say nothing about the near constant increase in money supply which also disadvantages their constituents in the form of stealing the value of their property over the long term.
The idea that one’s money will simply lose value has been normalised globally
It is particularly egregious in South Africa because the text of the Constitution expressly forbids the devaluation of the currency, yet the idea that things will progressively become more expensive has been normalised.
Inflation is theft. What the SARB does in increasing the monetary supply is effectively to steal the purchasing power of South Africans. This practically translates to having less money to spend on food, clothing and other necessities of life
We would not normalise a thief coming into your house and taking pieces of your food bit by bit; yet when it is done by the SARB, unconstitutionally, it is business as usual.
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As elections are around the corner, South Africans must keep the issue of the inflation of the money supply, which causes prices to increase, in mind. The sheer scale of the theft of inflation is unfathomable as it disadvantages society collectively – beyond the individual struggles of not being able to afford goods or services.
How can we profess to be serious about solving poverty and fostering prosperity when we allow the silent theft of inflation to go unpunished and unchallenged? Until the South African Reserve Bank is held to the constitutional standards it was set, we will continue our march down the road to serfdom.
Mthembu has a BA Law LLB (Wits) and is a policy officer at the Free Market Foundation
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