While there exists the beautiful and productive possibility of cooperation between individuals and groups, there is also the opportunity for and reality of conflict. Interpersonal conflict is intensified when hegemony and intervention, especially via the political state, disrupt peaceful cooperation and instead create a caste system—stratifying those “privileged or burdened by the state.”
Distinguished from dishonest Marxian “class” analysis, which suffers from the ideological fallacy, caste analysis—which has a rich tradition in libertarianism—coherently examines how certain castes are privileged or burdened by the state, namely, by dividing them into the net tax-paying caste and the net tax-consuming caste. One of the most evident—though not only—ways to determine the societal castes is the net transfer of revenue or production between groups achieved via the state. In other words, on net, who pays the taxes and who consumes the taxes?
Rather than the mutual benefit of the peaceful and cooperative production-and-exchange mechanism, which enriches everyone, state involvement requires people to benefit at the expense of others. This not only further empowers the political caste, but it teaches people to attempt to seize control of the state apparatus in order to gain at the expense of others rather than gain through production and exchange. Especially in democracies, this destructive tendency encourages a strategy of racing for short-term, temporary gains by impoverishing others before they can impoverish you. Concerning caste conflict, Rothbard writes,
Where government intervenes…caste conflict is thereby created, for one man benefits at the expense of another. This is most clearly seen in the case of government transfer subsidies paid from tax or inflation funds—an obvious taking from Peter to give to Paul. Let the subsidy method become general, then, and everyone will rush to gain control of the government. Production will be more and more neglected, as people divert their energies to the political struggles, to the scramble for loot. It is obvious that production and general living standards are lowered in two ways: (1) by the diversion of energy from production to politics, and (2) by the fact that the government inevitably burdens the producers with the incubus of an inefficient, privileged group…. Those who succeed on the free market, in economic life, will therefore be those most adept at production and at serving their fellowmen; those who succeed in the political struggle will be those most adept at employing coercion and winning favors from wielders of coercion.
In such a context, people of different demographic groups (“classes”) begin to resent one another, blaming each other—rightly, wrongly, or partially correct or incorrect—for the distorted economic conditions. Of course, the state elite caste—who always seem to escape sufficient blame in this system—benefits when classes of people blame one another and then resort to the state to solve the problem. The state elite caste gains more money and power, the net tax-consumers benefit, the net tax-payers increasingly struggle, people sense something is wrong but don’t know who exactly to blame, people blame one another and resort to the political means, and the cycle continues. This dynamic is apparent in the current intergenerational contempt between the old and young.
Inflation: Taker and Giver
Cantillon effects—whereby the introduction of new money into an economy has an uneven dispersion effect of prices and wealth, benefitting earlier recipients-spenders at the expense of later recipients-spenders or non-recipients-spenders—are the whole reason for governments’ involvement in money production. Inflation does not just evenly increase prices and affect everyone in the same way, otherwise inflation as a practice and policy would be pointless. Due to the non-neutrality of money,
As long as the inflation is in progress, there is a perpetual shift in income and wealth from some social group, to other social groups. When all price consequences of the inflation are consummated, a transfer of wealth between social groups has taken place. The result is that there is in the economic system a new dispersion of wealth and income and in this new social order the wants of individuals are satisfied to different relative degrees, than formerly.
In his book Inflation and the Family, Jeffrey Denger describes “institutions and habits that result from the formation of inflation culture” (p. 115, emphasis in original). He further clarifies, “As the reader will observe, this economic environment [i.e., inflationary monetary policy] gives rise to the institutionalization of debt culture, rising class differentials, and an enhancement of moral hazard, rationality traps, and collective corruption” (p. 115, emphasis in original). Notably, the previous list are institutions and habits for which the younger generations are criticized by the older generations, all without realizing the economic explanation behind them, tending to increase intergenerational resentment and contempt.
Guido Hülsmann, in discussing the cultural impacts of inflation, mentions how inflation has different impacts on different generations and hints at the discontent between them as a result,
Now permanent price inflation comes with a heavy cost—heavy social cost—most notably in the form of the redistribution of wealth in favor of the “haves” and to the detriment of the “have nots.” In an environment of permanent price inflation, perishable goods are traded at a discount and durable goods—which help us to protect our wealth against the loss of purchasing power of the money units—trade at a premium. Now what are the most durable goods? Real estate and financial titles. What are the most perishable goods? What’s the most perishable good? Human labor. Human labor cannot be stored any second…. So as a consequence then, labor trades—in an inflationary environment—at a discount, as compared to durable goods, such as real estate and financial titles. And this manifests itself in the increasing difficulties of the rising generation to accumulate wealth. It just takes many more years of work and increasing saving rates to catch up with the level of wealth that has been accumulated by previous generations, in a shorter time and with lower savings rates. Now the data are very clear in that respect. So we have a lot of whining sometimes with the younger generation and, of course, we need to slap them on their cheeks from time to time, but it’s not without reason, right? They definitely have a harder time today than they had before. It is harder for younger people, harder for younger families just to catch up.
“Affordability” and Intergenerational Conflict
There has always been some resentment between the “old” and “young” generations, and much of this is natural, or at least historically normal. However, add in generations of wealth-destroying and wealth-transferring inflation, which necessarily favors some over others, and a legal caste system that privileges some (net tax-consumers) and burdens others (net tax-consumers), plus a good amount of economic illiteracy, and you have a recipe for intergenerational resentment. Mises identified this as a consequence of inflation in Economic Freedom and Interventionism,
Even a much more moderate inflation [than Weimar Germany], however, shakes the foundations of a country’s social structure. The millions who see themselves deprived of security and well-being become desperate. The realization that they have lost all or most all of what they had set aside for a rainy day radicalizes their entire outlook. They tend to fall easy prey to adventurers aiming at dictatorship, and to charlatans offering patent-medicine solutions. The sight of some people profiteering while the rest suffer infuriates them. The effect of such an experience is especially strong among the youth. They learn to live in the present and scorn those who try to teach them “old-fashioned” morality and thrift.
Even the framing of the “affordability” crisis serves to misdiagnose the source of the issue. Rather than calling the issue “inflation”—also commonly misdefined, which contributes to misdiagnosis and counterproductive policy suggestions—the use of “unaffordability” or “affordability” immaturely implies that the only problem is that people simply don’t have enough money and just need more so that they can afford things. Further, a good part of the resentment, especially between the old and young, seems to focus on those who are largely able to afford what they want in life and those who cannot.
Thus, any attempt of older generations—who seem able to “afford” what are considered to be key economic goods (e.g., housing, etc.), or who had the opportunity to buy those goods when they were “affordable”—to provide financial advice to the younger generations is viewed with contempt. Even if the advice is financially sound (i.e., saving, paying off debt, budgeting, living below one’s means, investing for retirement, etc.), in an economy warped by inflation, it is viewed as irrelevant, insufficient, hypocritical, and out-of-touch with reality.
Older generations see younger generations with high time preference—making foolish and risky financial decisions—as privileged to grow up with the resources of the modern world that did not exist in previous generations (e.g., the internet, etc.). Further, as a result of inflation culture and economic illiteracy—shared by all generations, but often concentrated more intensely among the young—the older generation sees young people advocating infantile and destructive economic and political ideologies and consider them insolent and ungrateful for rejecting the advice that comes from their age and experience.
According to Rothbard’s caste classifications, on average, the older generation (65+) are currently net tax-consumers and younger generations (under 40) are net taxpayers. That said, it is important to also keep in mind that these categories are not static. Most older individuals began as net taxpayers and they end life as net tax-consumers. This not only encourages intergenerational resentment, but incentivizes the older generation to use the state apparatus to maintain their net tax-consumer caste and the younger generation to use the state apparatus to enter the net tax-consumer caste. This is intergenerational rent-seeking.
Conclusion
Inflation therefore generates far more than higher prices and distortions of the structure of production; it warps the moral and economic fabric that makes intergenerational cooperation possible. Though inflation raises society’s overall time preference generally, it affects age cohorts asymmetrically. Older generations—often having already accumulated assets—can shield themselves through inflation-hedging investments. Younger generations—still attempting to save and build capital—find that prudence is systematically punished. The result is a mutual resentment: youth see the economic norms of thrift and patience as obsolete in an inflationary world, while their elders see them as irresponsible for failing to follow the very rules inflation has rendered self-defeating.
Inflation also redistributes experiential expectations about how to achieve economic and financial success. Saving for a home, saving for the future, investing, and supporting a family no longer function the same way under inflationary regime. When the same behaviors no longer yield the same outcomes, the continuity between generations breaks down. Parents and grandparents cannot meaningfully hand down the economic “rules of life,” and the young do not trust the wisdom of a world that no longer exists. Asset inflation intensifies the divide, turning housing, land, and capital formation into competitions in which the gains of earlier buyers often come at the expense of those who came later.
As an example, for individuals in the older generations who own a house or property, they benefit from price appreciation from inflation; on the other hand, younger generations are usually hurt by price appreciation in assets like housing. Now part of the already-hampered housing market partially involves competition between older generations who want to buy houses or property as an inflation-hedging investment and younger generations who want to purchase their first home to live in. Both are dealing with the consequences of ever-depreciating money which puts them in rivalrous competition with each other.
Every society teaches its younger members some norms regarding thrift, patience, saving, and risk. Inflation reverses the reward structure and teaches terrible lessons. Inflation destroys not only wealth but moral pedagogy. While sound money certainly cannot solve all intergenerational issues, it at least removes significant opportunities for conflict, resentment, and contempt.
