One intriguing aspect of both the Massachusetts Land Bank and other inflationary colonial schemes is that they were advocated and lobbied for by some of the wealthiest merchants and land speculators in the respective colonies. Debtors benefit from inflation and creditors lose; realizing this fact, older historians assumed that debtors were largely poor agrarians and creditors were wealthy merchants and that therefore the former were the main sponsors of inflationary nostrums. But, of course, there are no rigid "classes" of debtors and creditors; indeed, wealthy merchants and land speculators are often the heaviest debtors. Later historians have demonstrated that members of the latter group were the major sponsors of inflationary paper money in the colonies. --Ron Paul and Lewis Lehrman, The Case for Gold: A Minority Report of the U. S. Gold Commission, 25In the introductory quotation, Ron Paul and Lewis Lehrman address a common misconception over who benefits from a deliberate policy of monetary inflation. At the root of this misunderstanding is the faulty assumption that debtors must be the poor starving masses and that the creditors must be a handful of rich businessmen and women. The provenance of this misinterpretation can be traced back to ancient Athens. During an interview with Professor Percy L. Greaves, Jr., Professor Dr. Ludwig von Mises mentions that the faulty assumption can be traced back to the ideas of Solon. Mises tells Greaves, with regard to the faulty assumption above, that
this [i.e., the faulty assumption] was perfectly correct twenty-five hundred years ago in Athens, when the great statesman Solon exacted economic reforms cancelling public and private debts. Solon had to deal with what we today call "social problems." At that time the debtor was typically the poor man and the creditor was the rich man. The rich people could save and increase their possessions by investing in real property, houses, businesses, forests, and other landed property. For the masses of the people things were different. Most of them couldn't save at all...
But we no longer live in Athens in the days of Solon. Nor do we live under the conditions of the Middle Ages or of the sixteenth, seventeenth, and eighteenth centuries, when the poor people couldn't save. Under capitalistic conditions the situation is very different. (Ludwig von Mises, On Current Monetary Problems, Article #43 in Economic Freedom and Interventionism, 214, emphasis mine).The same misconception over who is the creditor and who is the debtor and therefore the question of who benefits from inflation and who loses was picked up by Nazi propaganda. In fact, this entire issue is at the core of one of the major Nazi party demands, namely the elimination of "interest slavery." In a paper entitled On Some Atavistic Economic Ideas (Article #28 in Economic Freedom and Interventionism), Mises notices that "the most spectacular manifestation of the misinterpretation of the economic meaning of the present-day creditor-debtor nexus was provided by the program of the National-Socialist-German-Labor-Party, the Nazis" (153). The Nazi propaganda, written by Gottfried Feder, called for the "destruction of interest slavery" in the unalterable party program. However, just as the colonial Americans in Massachusetts were confused so too the Nazis were confused. In fact, one of the voices of dissent against Hitler and the Nazi regime published an article entitled, "Do you, average reader, know that you are a creditor?" To this observation, Mises notes, "the German voters who practically unanimously voted for Hitler certainly did not know it" (153).
At the core of the misconception, then, is to assume incorrectly that the masses of people are not savers. The faulty assumption is to assume that the rich are the creditors and the poor are debtors. As Mises stressed in the article On Some Atavistic Economic Ideas, "under the modern credit organization the more opulent strata are more often debtors than creditors" and "the common man is a creditor insofar as he has taken out insurance policies, has savings deposits with commercial banks and savings banks, owns bonds whether government issued or corporate, and is entitled to receive retirement and old age pensions" (153).
I should further emphasis that the properties of the "common man" who is also a "creditor" just happen to be the "perfect storm" scenario for being victimized by an inflationary policy. At this point, the observation that the rich are trying to use inflation as a "bail out tool" so that they can reduce the burden of their debt should be obvious. Inflation is just a way for the rich to avoid paying their debts to the savers, the "common man" on the street. What makes this a "perfect storm" for hurting the common man, the saver, the creditor, is that the process of new money creation (i.e., the inflationary process) is rigged to transfer wealth from one group to another group. The most vulnerable people in this process are the ones who are on fixed incomes. As we shall see in a moment, these fixed income victims are perfectly described by Mises in the quotation above.
Murray N. Rothbard goes to the heart of this wealth-transfer problem of inflation, which is specifically designed to hurt the creditors and savers (i.e., the "common man") when he observes that
those who get the [newly created] money early in this ripple process benefit at the expense of those who get it late or not at all. The first producers or holders of the new money will find their stock [of money] increasing before very many of their buying prices have risen. But, as we go down the list, and more and more prices rise, the people who get the money at the end of the process find that they lose from the inflation. Their buying prices have all risen before their own incomes have had a chance to benefit from the new money [so their "real" cash balances will fall; they have the same amount of money in dollars but with higher prices on most goods at the store, they can now buy fewer goods and services]. And some people will NEVER get the new money at all: either because the ripple stopped, or because they have FIXED INCOMES--from salaries or bond yields, or as pensioners or holders of annuities. (Murray N. Rothbard, the Mystery of Banking, 50, emphasis and square bracket clarifications are both mine)In other words, the biggest victims of inflation are the savers, the people on fixed incomes and fixed salaries. The biggest winners from an inflationary policy are then the people with large debts and the people who are the early receivers of the newly created money. As we saw above, the largest debtors tend to be the wealthy; consequently, the indebted wealthy people are the first beneficiaries of an inflationary policy. The inflation effectively "bails them out" from all of their debts. The second major group to benefit from a deliberate policy of inflation is the early receiver group. Who are the earlier receivers of the new money? It turns out that they are usually a group of well connected big businesses too! In Ludwig von Mises's 1919 book entitled Nation, State, and Economy: Contributions to the Politics and History of Our Time, citing Auspitz and Lieben, Mises notes that "during the issue of notes, the additional means of circulation will be concentrated in the hands of a small fraction of the population, e.g., of the suppliers and producers of war materials" (130, emphasis mine). Consequently, we see that the second major group to benefit from an inflationary policy is what today we might call the "military-industrial complex." Therefore, the two groups who benefit from inflation are the military contractors and the heavily indebted corporations and wealthy individuals. They benefit because they not only receive the new money at the earlier stages of the rippling effect but also engineer a reduction in the real costs of their debt. In both cases, the "common man" or the saver is hurt. The common man experiences not only a reduction in the real value of his savings (since he is a creditor) but also a penalty for being a later receiver of the new money (or in the extreme case because he never receives any of the new money; and so his real cash balances are severely depleted).