John Maynard Keynes once said that gov. can confiscate wealth from its citizens via inflation. How?

Question

Here is the full quote: "By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens." - John Maynard Keynes

Answer 1

the government can raise money three ways.

1. Tax your earnings (confiscate money directly from your pay check).
2. Borrow money (lend money to you and to foreign governments with savings bonds)
3. Print money.
All three of these methods confiscate wealth because the government must pay back the money borrowed (method #2) by taxing even more, or printing even mor money (methods #1 and 3). Method #1 obviously takes money from you overtly.
Method #3 takes money from you by diluting the value of a dollar by flooding the market with them.
Printing money is inflation. Rising prices is the result of inflation, not the definition of it.

Answer 2

"Controlling" inflation is no easy task. Management of an economy is very complex. I think Keynes was implying that inflation distorts the purchasing power of our assets and our income, which results in the loss of real wealth. It's not like the government swoops in and claims this wealth, it just contributes to the erosion of our wealth when it remains on the side lines and doesn't step in to stabilize the price level. Keynes was a big proponent of government involvement in the economy.

Answer 3

The fed adds liquidity to the banking system by buying Government bonds with "money" created out of thin air. Ordinarily the amount of money created is small, just enough to facilitate commerce in a growing economy. If they create too much inflation is the result, and the real value of all financial assets decline and the government debt falls.
Printing money or expanding currency supply is the old fashion way of expanding the "money" supply, in the modern financial world money is credit or liquid assets, which gives you the ability to buy things.

There is only about 800 billion dollars in currency in circulation, the majority of it foreign countries and the deficit for a single year can reach half that amount.
http://en.wikipedia.org/wiki/Money_supply

Answer 4

If the government does not tax to pay for its goods, it could simply print money to pay of its goods. Inflation is the result. and really sort of a tax on everyone without anyone really knowing about it.

Of course, it was due to Keynesians after WWII for the government to keep information on inflation and output, so there really is no 'mystery' about it.

Currently, we tax, but not as much as we spend, so there is a deficit. By inflating the economy, the real amount we owe falls over time

Answer 5

Inflation means your money is losing value. So governments can control inflation, therefore controlling the amount of value loos you take due to inflation.