Confiscate or Repudiate?

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In 1919, in his book The Economic Consequences of Peace, John Maynard Keynes wrote:
“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”
“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I’ve heard that quote for years, but I’d never quite understood it. Stalin’s statement is technically correct, but his choice of words (at least in the translation) is misleading. The word “confiscate” has a future tense implication that confuses (me, at least). The word “confiscate” implies that government first initiates inflation, and then (in the future tense) “confiscates” takes the people’s future wealth.
But that’s not exactly true. Inflation is not primarily the means by which government takes the money the people will earn. Inflation is the means by which government takes the money that the people have already earned and saved and/or already loaned to the government–often in the form of bonds. Inflation is particularly, the means by which government repudiates the debts that it owes to all of its creditors—including the American people.
More, the word “confiscation” implies the kind of violence where someone kicks in a door and physically seizes your wealth. The process of inflation is far too subtle to be described as a physical violence.
And finally, “confiscation” suggests that the taking of the people’s wealth is involuntary, without the people’s consent. But that’s not quite true, either. By means of inflation, each of us is presumed to consent to be robbed.
I.e., suppose you loan the government $20,000. You get a $20,000 bond (debt instrument/ paper promise to pay) or perhaps a So-So Security Account entry in return. Government then initiates 15% inflation, and the thereby repudiates 15% of the purchasing power of their debt to you for each year the inflation continues. They don’t “confiscate” your wealth in the sense that they kick in the door, burst into your house and steal everything you own. Instead, government simply repudiates 15% of the value of debt they owe you.
Technically, they don’t exactly “take” your wealth since you already voluntarily loaned your wealth to them. You trusted them with your wealth. So, instead of “taking” or “confiscating” your wealth, government instead changes the value of the unit of measurement of that wealth and repay you with less valuable dollars. They don’t “take” your wealth; they simply refuse to repay the full value of the wealth you have already loaned to them.
The government doesn’t use inflation to confiscate your wealth; they use inflation to repudiate their debt for the wealth that they’ve already borrowed. The government doesn’t take your wealth without your consent. They simply repudiate paying all of the value of the debt that they owe you. And, insofar as you accept and even try to profit from inflation (you’re not paying all of your debts, either), you have implicitly consented to be robbed by government, just as your creditors have “consented” to be robbed by you.
OK—so I finally understand Stalin’s statement. I still disagree with use of the word “confiscate,” but in conjunction with the concept of “repudiating” existing debt, I understand what Stalin was trying to describe.

Keynes also pointed out the relationship between governments printing money and inflation. I wonder what Keynes would say today when we no longer print money so much as digitize it. If Keynes thought “printing” of paper money was something bizarre, he should’ve lived long enough to see the “digitizing” of money. Digitizing money into electronic 1’s and 0’s is like printing money at the speed of light.

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