The Hidden Tide // E.1
The Hidden Tax You've Already Been Paying. A dollar in 1900 is worth 2.7 cents today — and almost none of that showed up in the official inflation numbers.
There are two kinds of inflation. The government reports on one of them.
Here is something most people feel but few can name.
You work hard. Your salary goes up — maybe not as fast as you’d like, but it goes up. You’re not reckless with money. And yet, year after year, the gap between where you are and where you thought you’d be by now keeps holding steady, or quietly growing.
The common explanation is inflation. Prices go up. The grocery bill is higher. Gas is more expensive. The government tracks this version of inflation carefully — the Consumer Price Index, updated monthly, reported with two decimal places of false precision.
This kind of inflation is real. But it is not the whole story.
There is a second kind of inflation that operates in the background of every financial decision you have ever made. It is slower, quieter, and in the long run, far more consequential than anything that shows up on a CPI chart. Almost nobody reports on it. Almost nobody names it clearly.
It is called monetary inflation. And once you see it, a lot of things start to make a different kind of sense.
Start with this number: a dollar in 1900 is worth approximately 2.7 cents today.
That is not a rounding error. Over the last 125 years, the dollar has lost roughly 97 percent of its purchasing power.
Now here is what makes that number interesting: almost none of that loss showed up as obvious, political, newsworthy inflation. There was no single decade where the CPI announced “prices went up 40 percent this year, sorry.” The debasement was distributed across time — a little here, a little there — slow enough to be tolerable in any given moment, and cumulative enough to be devastating across a lifetime.
Where did the value go?
This is the part that changes how you see things.
Monetary inflation does not show up primarily in the price of groceries. It shows up in asset prices — houses, stocks, gold, and anything else the financial system treats as a store of value.
Think of it this way. Imagine a tidal harbor. The water rises so slowly you can’t see it move. An hour at the dock, and the level looks unchanged. A week later, you might notice. A decade later, the marks on the seawall are unrecognizable.
That rising water is monetary inflation. The money supply expands a little each year. You don’t feel it day to day. But across a lifetime, it reshapes everything around you.
Now think about where you’re standing in that harbor.
If your wealth lives in a paycheck — dollars you earn, spend, and try to save — you are standing in the water. The bills in your wallet still look the same. The number on your pay stub may even be going up. But the water keeps rising around you. Each year, you have to reach a little higher just to keep your head above the surface. You are not failing. You are not lazy. The conditions are silently changing underneath you.
If your wealth lives in assets — a house, a stock portfolio, anything that floats on the monetary tide — you have a boat. As the water rises, the boat rises with it. The hull didn’t get sturdier. The asset isn’t more productive than it was last year. But measured in dollars, it is worth more. Because the tide came up.
The house didn’t get better. The dollar became less valuable.
Michael Howell, who has spent decades studying global liquidity flows and monetary policy, uses a phrase that has stayed with me.
He calls monetary inflation “the chosen solution to our economic ills — not a short-term problem.”
The word chosen is worth pausing on.
Modern governments carry debt loads that cannot realistically be repaid at face value. Tax revenues have limits — push rates too high and you destroy the economic activity that generates the tax base.
Spending has a floor — demographics, defense commitments, and social obligations (entitlements) ensure that outlays grow faster than most governments can manage.
Borrowing has limits — bond buyers eventually demand higher yields for taking the risk, and higher yields make servicing and refinancing the debt worse, not better.
That leaves a door that doesn’t require an election, doesn’t show up on a payslip, and doesn’t announce itself in a press conference.
The banking system, working in coordination with central banks, can purchase government debt and expand the money supply to accommodate it. Not with a physical printing press — the mechanics are more abstract than that — but the effect is the same. More currency units enter the system. The real value of each existing unit dilutes, slowly and quietly, over years and decades.
This is not new. Roughly a quarter of American war spending in World War II was financed this way. The 2008 financial crisis was managed this way. The pandemic response was managed this way. The occasion changes. The recipe doesn’t.
Howell argues — and the historical record supports him — that what we are living through now is not an emergency measure reluctantly deployed. It is the permanent, preferred operating mode of the modern monetary system. Monetary inflation is not the bug. It is the feature.
Here is the part that I find hardest to sit with.
Monetary inflation does not distribute its effects evenly.
If you own assets — a house, a stock portfolio, anything whose price floats with the monetary tide — inflation quietly works in your favour. The real value of your holdings tends to hold or grow, even as the currency itself weakens.
If your primary financial asset is your labor — if your wealth lives mostly in a paycheck that you receive in dollars and then try to spend or save — you are on the other side of that trade. The dollars you earn are worth a little less each year. The assets you are trying to accumulate are priced in those same diluting dollars, which means they become a little harder to reach each year, even if you are working harder.
This is why someone at 30 today owns roughly a quarter of the wealth their parents owned at the same life stage — not because of different effort or different ambition, but because the conditions of accumulation have silently shifted. The same system, operating the same way, producing the same structural outcome it has always produced.
No one designed this to be cruel. No single person sat in a room and decided to transfer wealth from wage earners to asset holders. It is, in Howell’s framing, an architecture. A set of incentives and mechanisms that were built up over decades, and that now produce a predictable result whether anyone intends it or not.
The architecture has a beneficiary. It is the person who got there first.
Which brings me to the question I keep coming back to.
If monetary inflation is not a temporary problem but the system’s chosen long-term solution — if it reliably and continuously redistributes value from people who earn dollars to people who hold things — then what does a reasonable person do with that information?
More precisely: is there any asset that sits outside this system entirely? Any store of value whose supply cannot be quietly expanded by the decisions of governments and central banks, year after year, in the background?
I am not going to answer that question in this piece. I would rather you sit with it.
But I will say this: the fact that the question feels harder to answer than it should probably tells us something worth paying attention to.
This is the first piece in “The Hidden Tide” — a series exploring the forces that shape money, markets, and wealth, for readers who never planned to become financial experts. Each piece stands alone. Read them in sequence and the picture gets bigger.
Check out the full series preview here.