When a recurring problem raises its head once again to become a present-day issue, it is helpful to look back to the greats of history to see their time-tested perspective. As rising inflation rates around the world impose a greater burden on its people, one treatise among many stands out as a particularly severe and hard-hitting moral condemnation of inflation by a brave man that understood inflation and the impact it had.
The man in reference is Juan de Mariana (1536-1624), an extraordinary Spanish Jesuit scholar of his time, known for stirring up controversy with his radical ideas that often got him into trouble. His work on inflation, written over 400 years ago, is his De monetae mutatione (published in English as A Treatise on The Alteration of Money). This firm statement against inflation earned him a charge of treason and imprisonment. His economic thought in the Salamancan tradition bears surprising similarity to the Austrian school that would develop centuries later. In fact, the first chapter of The Great Austrian Economists is devoted to him. One might rightfully call him a “Forefather of Austrian Economics.” He even won the Austrian Economics Center’s own Austrian Economics Championship, beating even Friedrich Hayek and Ludwig von Mises.
Being part of the scholastic tradition, Mariana is unlike many contemporary scholars. His knowledge is not limited to a narrow field, but is profound in a wide variety of topics, including economics, morality, theology, law, and history (Thomas Jefferson sent a copy of his History of Spain to James Madison with high praise).
His treatise on money is not merely a breakdown of inflation and why it is economically inefficient. It is a moral condemnation. To Mariana, the debasement of money by the king is an evil act. He refers to the practice of debasement as “barbaric” and “a plague in the republic.” It is the equivalent of theft because he recognized inflation to be a hidden tax on the people. Because the people did not consent to this tax and are not fully aware of how they are being taxed, inflation is a form of fraud, and therefore “against right reason and natural law.”
A debased currency is not the same as it once was prior to its debasement, and therefore it would not even be right to repay a debt without accounting for inflation, realizes Mariana. Imagine if governments today were required to account for inflation when committing to pay back debt.
Mariana’s direct insults against political leaders that inflate currency didn’t win him any favors. He called them “these most pestilent of men” and asserted that they “are not concerned with honesty.” Those in power “seem less educated than the people because they pay no attention to the disturbances and evils frequently caused by their decisions, both in our nation and beyond.” Perhaps it is these words in particular that had something to do with his charge of treason. At the very least, they didn’t help.
Because the king does not own the property of those under him, Juan de Mariana sets out to determine to what extent the king can tax his own people. Although he does not have a right to tax by inflation, the king can levy a regular tax with the consent of his people if it is done to fulfill his obligation to maintain a peaceful and stable society. Beyond that would be an abuse of power. This separates true kings from tyrants, for he says “the tyrant is he who tramples everything underfoot and believes everything to belong to him; the king restricts or limits his covetousness within the terms of reason and justice.”
Although Mariana’s moral arguments give him a unique charm, he also stresses many practical concerns with inflation, revealing his brilliant understanding of money for his time. He stresses prudence, that it is better for those in power to leave alone things that they don’t understand. The natural market value of money is the true value, and for a king to intervene and mess with these values is blind tampering with drastic consequences. He writes:
“Only a fool would try to separate these values in such a way that the legal price should differ from the natural. Foolish, nay, wicked the ruler who orders that a thing the common people value, let us say, at five should be sold for ten. Men are guided in this manner by common estimation founded on considerations of the quality of things, and of their abundance or scarcity. It would be vain for a Prince to seek to undermine these principles of commerce. ‘Tis best to leave them intact instead of assailing them by force to the public detriment.”
Value is based on the “common estimation of men,” and cannot be easily manipulated. A stable currency is necessary for maintaining economic order, and inflation destabilizes this order. Mariana warns the king that he “cannot profit without the suffering and groan of his subjects,” for “money is hardly ever debased without calamity to the state: Profit for the moment is intimately connected with manifold ruin along with rather great disadvantages.”
In chapter 10 of his treatise, Mariana states the many disadvantages to the king and his nation of manipulating money. He rightly asserts that “there is never an alteration in coinage without subsequent inflation.” A major problem with inflating currency is reduced trade. Since inflation harms money, and money is used for trade, inflation harms trade. The king will also be harmed by this. Although the king profits initially by stealing from his people via inflation, inflation ruins his people and sickens the country. Consequently, poorer people will have greater trouble paying taxes to the king.
He warns kings that the greatest problem with inflating the currency is the general hatred toward him from the people. The king receives praise for a happy country and blame for an unhappy one, and so a wise leader would avoid inflation.
Mariana was a wise and brilliant man, addressing the same problem we have today. We would do well to remember him, and to echo him today in reminding modern-day leaders of both the serious evil and grave consequences of inflation.