Inflationary Policies
Why do governments engage in inflationary policies?
Correct Answer
Numerous academic sources document that governments engage in inflationary policies to effectively tax citizens at higher rates and/or to default on their national debts. For example, a 2009 book published by Princeton University Press states, "Governments can also default on domestic public debt through high and unanticipated inflation," and "inflation has long been the weapon of choice in sovereign defaults on domestic debt and, where possible, on international debt." It also explains that "governments engage in massive monetary expansion, in part because they can thereby gain a seigniorage tax on real money balances," and "seigniorage is simply the real income a government can realize by exercising its monopoly on printing currency," which "causes inflation, thereby lowering the purchasing power of existing currency." More examples are provided at the link below.
DocumentationCauses of Inflation