Expansion of credit does not pick my pocket. One, because expansion of credit does not always issue in inflation - it can and does, but need not, and other causes also need to operate for it to do so - and two, because inflation does not pick my pocket. I have no prior right to all prices remaining unchanged henceforth forever.
But to see it in its capitalist purest form, if a shopkeeper puts a $1 higher price on an item you wanted yesterday but did not buy, and you walk in the next day and buy it at the higher price, has the shopkeeper picked your pocket? No monetary anything, he just sought a higher profit for himself or wishes to pay his shoegirl more etc.
Have you been robbed? Did you have a right to the lower price yesterday? Should the government come and arrest the shopkeeper for stealing from you? Fix his prices? Outlaw price changes to stamp out such robbery in the future?
You agreed to the price you paid later. You therefore showed to a demonstration that the item was worth more to you all along, than the dollars you parted with to have it. Clearly the shopkeeper prefers the dollars, or he wouldn't let you walk out with his property. You are both therefore more pleased after the voluntary transaction than you were before it, or it doesn't occur.
Do you have a prior right to the extra $1, as well? You do not. There are undoubtedly a whole range of prices at which you would be willing to buy the item. Likewise a whole range of them at which he would sell. Between them, you have a deal, and the haggling between them is not a matter of right to either of you, nor is it a deal breaker, either way, and there is no robbery of any kind involved in a lick of it. You are just dickering over who gets what portion of the *gain* from your trade. You are both gaining our you'd walk, or he'd keep his item.
The freedom to set prices is therefore not a form of robbery. Unless you are clear on that, you won't get any of the rest of it. This principle, socialists deny. And that denial is in the end imcompatible with economic freedom.
None of which is specific to money effects or credit issuance effects.
Prices for some goods will rise naturally in response to changes in the composition of demand. This isn't a form of robbery, it is how the system signals the importance of one item compared to another, and all supporters of economic liberty recognize this. The economy as a whole is solving an *allocation* problem, and it cannot do so with flexibly deploying incentives, to encourage the relief of shortages where they bind the most or to supply first the most urgent requests.
The whole price level can also move, instead of its internal composition changing. This is in principle no different from the previous, and would arise under any monetary system whatever. Because the allocation problem the economy needs to solve, is not a *static* allocation problem, at one snapshot it time. It is a dynamic allocation problem, an intertemporal allocation problem. Some goods now can be traded for other goods later.
The same fluctuations in the composition of demand that can mean more expensive cars and less expensive shoes or the reverse, can mean more expensive items today and less expensive items tomorrow, or the reverse - because their composition at the different times is different, and because intertemporal trades exist. Intertemporal trades are credit and capital transactions.
There is then no a priori reason to expect the price level to remain literally unchanged, if men are free. Without any pockets being picked, and regardless of the monetary system. Nobody has a prior right to an unchanged future price level, and if one tried to enforce such a demand as a supposed requirement of justice by outlawing anything that could disturb it, then no meaningful economic freedom to engage in any credit or capital transactions would survive the procedure. Because every one of them, not just monetary policy actions, changes present and future price levels.
Next we get to gratuitious credit proper. This means the issuance of any debt accepted as full payment for something, without prior commodity cover of the debt issued. When the issuer is a bank this creates money, but that merely reflects the special status market participants afford to bank debts compared to other debts, that they universally accept them. They do so because they are the most liquid asset, everyone being willing to hold a fair portion of them and no one refusing them, in practice.
This bare acceptance implies that the benefit from using money exceeds any costs associated with it, and in that respect shows, already, that claims of robbery in the matter are hyperbole. Bankers don't put guns to your heads demanding that you accept their debts, from them or anyone else. Robbers, in case everyone forgot, do, except for the part about leaving you with anything useful, a debt or anything else.
But the point about credit equivalence is important, because any attempt to outlaw as supposedly unjust, money issuance, because it effects prices in ways some group or other claims are against its interest, could also be directed with the same logic against any other gratuitous credit transaction. They all have the same economic effects. I am not willing to sign over my freedom to engage in such transactions, I deny that my engaging in them picks anyone's pocket, and I consider it slander to say otherwise.
Move on to money issuance specifically. Does it always raise prices? No. One, prices would fall continually in the absence of new money issuance. This would represent a continuing transfer of real wealth to holders of nominal debts. Money issuance up to some level consistent with price stability, would be required to prevent that from happening. In every transfer there are two sides, so if the transfer itself is robbery and illegitimate, then the direction does not matter, only that it occurs at all. Therefore, this position is committed to demanding net new issuance of money, not to forbidding it.
The advocates involved are unclear on the point themselves. Sometimes they pretend that any money creation without commodity cover is ruinous economically, or unfair as a transfer of real value. But technically and practically, it takes some of what they condemn as economically ruinous, to prevent what they condemn as unfair as a transfer.
Lets pass by that and restrict ourselves further, to money issuance sufficient to raise the average price level. First question, how much is that? Can anybody know beforehand? Is there any mechanical relationship between the scale of new money creation and the change in future prices, that could be calculated beforehand and relied upon, to keep the level of prices steady? Answer, no, there is no such mechanical relation. And the level of new money creation required to keep the price level broadly stable, can only be found empirically, by trial and error, by issuing this much or that much and watching what happens to prices, then issuing more or less in response to their signal.
Already this means that any demand, whether of justice or of just practical expediency, that money issuance be regulated to keep future prices broadly stable, requires ongoing continual money issuance by some authority with discretion to change the rate at which new money is added. Denounce any such authority as unjust or as pickpockets, and you much abandon any pretence that monetary policy will be so regulated as to keep future prices stable, since it takes new issuance and adaptive discretion to even try.
No one has a prior right to the results of an elaborate learned art, which doesn't exist in the world at all, natively. Especially not to a perfectionist version of those results. Even if everyone agreed on that goal of policy and everyone conscientiously acted seeking it, it would be but indifferently achieved. No claim in justice would run against the attempters for being human and missing occasionally. But that is an aside - the reality is men also disagree about the goals etc.
Restrict further, now we consider new money issuance sufficient to increase future prices and deliberately sought to do so, and successful in the sense that future prices do rise. Has my pocket been picked, or yours? No. All that has happened is the exchange value of one good, money, has changed compared to the exchange value of all other goods.
Did I have to hold that asset, as the price changed? I did not. If I contracted in that asset as a measurement device, do I have to ignore likely future changes in its price when deciding the terms? No. If e.g. I expect to be paid back in a year for some loan, but expect the value of dollars used to denominate it to fall in the meantime, does this pick my pocket because it runs against me as lender and in favor of the borrower? No.
If I expect 4% changes and require 3% real interest, then I just demand 7% dollar interest from the counterparty. If he agrees with the price change forecast and to the real rate, he will agree. If he does not, it is because we disagree about how much the terms will transfer. If we want the amount to be contingent on price changes, we can stipulate 3% plus reported CPI or whatever other measure we prefer. Or we can denominate the loan in silver, or any other commodity we like, instead of dollars.
Nobody's pocket has been picked.
As a matter of expediency, it might be a good policy to aim at long run price stability in money policy. That isn't the subject being debated. The subject being debated concerns economic rights of private parties and whether they are being violated, not the usefulness of this or that goal for a policy thought of as free to range between alternatives. The claim the other side is advancing is that only one outcome in such matters is just, and that claim is false (as well as largely unachievable in practice, and very dangerous to economic liberties to seek).
Now to the real economic effects of credit issuance. When new loans are deployed economically, they raise the wealth of the society. New capital *value* is actually created. Notice that new physical capital is not required to create new capital values, since rearrangements of use of existing physical capital is perfectly capable of doing so.
Notice also that prior net savings out of income are not required for new capital value to be created. That is one way new capital values can arise certainly, but they can also arise from better use or arrangement causing capital gains to the value of existing resources. Notice further that new savings ill deployed, will evaporate as a capital value, even if new physical capital is created (build an empty building where no one wants it e.g.).
The principle is - when the use of resources brought about by the new command issued by wealth being risked to arrange things in manner X, has greater value than the use of those resources in the old manner Y, then new capital value is created and is quite entirely real. When on the other hand the value of arrangement Y was greater than the value of arrangement X, then capital value is lost. We say, capital was misallocated, the understanding being, that men deploy their capital seeking to increase its value. Strictly, this isn't always a "mis" allocation, because men have a perfect right to consume the value of their capital if they choose to do so - but presumably do not intend mere allocation losses that destroy that value without benefit to themselves.
Then the question is, does net new issuance of credit (or bank credit to restrict it to money) always or automatically result in misallocation and capital loss? And the answer is, emphatically not. It can, because men are free to err in their capital allocation attempts. But if new credit it prudently used, it can and routinely does raise the capital value of the entire society, by producing capital gains fully equal to the new debt creation. The new debts are then paid when due, they are sound, they work.
Nobody is having their pocket picked when that happens - someone is just earning a gain somewhere by efficient allocation of resources, and the debt issued was a mere means of gaining command over those resources and risking them in that specific use.
But the reverse can also happen and it also frequently does. The new use of resources commanded by the entities the new loans went to, may instead fail to support the capital value of those loans. When that happens, those loans go sour, they fail, they are not repaid - or, to cover them, some other capital value is sacrificed by the entities involved.
Notice, if every scrap of the new use were funded by *equity* instead of debt, *exactly* the same thing can happen. If lots of people save out of income and transfer the real resources involved to an internet start up and it goes utterly bust, wasting and losing all their invested capital, the effect is quite exactly the same, as if a bank lent to that start up and the loan went bad.
Capital misallocation is what causes such capital losses, not the form under which the allocation is financed, or how the entities involved bid for the resources.
Is capital more likely to be misallocated when long interest rates are different from their equilibrium level, especially when they are well below it? Yes, because long rates being "off" means the trade off between future goods and present ones, that actually obtains over the future, is not seen correctly by present arrangers and planners of the use of capital. An asset that delivers most of its rewards 10 to 40 years from now, will look more valuable in present terms, at a 4% interest rate than at an 8% interest rate. If lots of people systematically invest believing that future long rates will be 4 and in fact they are 8, then they can destroy a lot of value.
The last is the actual operating cause in most of the capital misallocation losses in our boom and bust cycles. Notice, it depends only on a price motivating investment being wrong. Notice, further, that "wrong" in a price just means "later moves". The only way all such losses could be avoided entirely, is if prices never moved - but that would mean an inflexible system not worth the candle etc.
Is there, finally, an interaction effect between these things, in which men use the relative ease of new credit issuance to reorder capital arrangements on a large scale, sometimes in response to erroneous, temporary price signals, and especially those coming from long rates? Are the misses in those long rates sometimes about misestimates of the likely future rate of inflation? Yes on both counts, the first independently, the second also operating sometimes. (In my 3% real example above, some trades will happen at 6% because one side thinks the real rate is 2 and the other thinks it is 4 e.g.).
The last can be and is a cause of capital losses in boom and bust cycles, and policy should aim at avoiding too much of it. But it arises simply because (1) men are free to err and (2) prices move, and system is not simple or static. The bare possibility of such losses cannot be removed without destroying economic freedom.
And they aren't anybody picking other people's pockets, deliberately or otherwise. They are men trying to arrange the world's capital productively, and sometimes failing to do so well.
Capitalism isn't a racket, it is other men's freedom, and the basis of our own liberty as well as prosperity. It does not deserve any of these brickbats being hurled at it.