The Root Cause of Inflation — And What Ordinary People Can Do About It

Most people treat inflation like weather — something that just happens to you. But inflation isn't a natural disaster. It's the predictable result of a banking system that was quietly redesigned over a century ago. Understanding that system is the first step toward escaping it.

The Fake Soybean Problem

Imagine you're a farmer. You spend all season growing top-grade soybeans. You haul them to the grain elevator, and you expect to sell them at fair market value.

Now imagine someone else — a well-connected operator — gets government permission to take truckloads of dead autumn leaves, label them as premium soybeans, and sell them at the same price. Suddenly the market is flooded with "beans" that cost nothing to produce. The value of your real beans collapses. You've been robbed — not by a thief with a gun, but by a system that allowed someone to counterfeit the value of your work.

That's not a hypothetical. That is, in simplified form, exactly what happens every time the Federal Reserve engages in large-scale money creation — sometimes called quantitative easing. New dollars are created and injected into the financial system, which dilutes the purchasing power of the dollars already in your wallet. Your savings, your paycheck, your retirement account — all quietly worth a little less.

"The problem isn't inflation. The problem isn't debt. The problem isn't taxes. The problem is banking — specifically, that it's legal for the central bank to create money from nothing."

One Hundred Years of Evidence

This isn't a theory. It's recorded history.

From 1800 to 1900, under a commodity-backed monetary system, the U.S. dollar actually gained purchasing power over time. A dollar saved was a dollar — or more — kept. Ordinary Americans could save across generations without being robbed by inflation.

Then in 1913, Congress passed the Federal Reserve Act, creating a central bank with the authority to manage the nation's money supply. Within decades, the results became undeniable.

Key figures: The U.S. dollar has lost approximately 96% of its purchasing power since 1913 (Federal Reserve Bank data). Over 53% of Americans now draw at least 25% of their income from government transfer programs (Economic Innovation Group, 2024). And it all traces back to 1913 — the year fractional reserve central banking took over the U.S. monetary system.

That ~96% figure means that a dollar from 1913 has the purchasing power of roughly four cents today. The monetary system has consumed nearly all of the savings value that your grandparents and great-grandparents might have tried to pass down.

How the Cycle Feeds Itself

What makes this particularly difficult to stop is that each step in the cycle creates the conditions for the next one. Here's how it works:

Step 1 — Money Creation: The central bank expands the money supply, diluting the purchasing power of existing dollars.

Step 2 — Financial Stress: Everyday Americans find their dollars buy less. Household budgets tighten. Financial anxiety rises.

Step 3 — Government Dependency: People turn to government programs to fill the gap. Today, over half of Americans draw at least a quarter of their income from government aid.

Step 4 — Massive Government Spending: Funding tens of millions of program recipients demands enormous and growing expenditures.

Step 5 — Higher Taxes & More Borrowing: The government raises taxes and borrows heavily to fund programs. The debt load grows until it becomes unserviceable.

Step 6 — More Money Creation: Unable to service the debt through taxes alone, the government relies on the central bank to create additional liquidity. Back to Step 1.

Notice that no single actor in this cycle is necessarily acting with malice. Elected officials don't want to cause a painful economic reset — that would be political suicide for whichever party is in office when it happens. So the cycle continues, each revolution eroding a little more of the wealth that ordinary working people have built.

Why Washington Won't Fix This

This is perhaps the most important thing to understand about the inflation problem: it will not be solved from the top down. Neither party has a structural incentive to break the cycle. The short-term pain of unwinding a century of monetary expansion would be severe, and no politician wants to be in office when that bill comes due.

That doesn't mean nothing can be done. It means the solution has to come from the ground up — from individual families making different choices about where they store their wealth and how they finance their lives.

"Problems of this magnitude have to be solved by the people rising up and doing something different. It's never going to be solved from the top down."

Where the Infinite Banking Concept Fits In

The Infinite Banking Concept (IBC) — pioneered by economist R. Nelson Nash — is a strategy for using a specially designed whole life insurance policy as your own personal banking system. Instead of parking your money in a commercial bank (where fractional reserve lending allows that institution to profit from your deposits), you become your own banker.

Here's why this matters in the context of inflation:

The conventional banking system depends on deposits. Banks need your money sitting in their accounts in order to lend multiples of it out and collect interest — that's the essence of fractional reserve banking. The more people use that system, the more the system can expand. Widespread adoption of alternatives like IBC would reduce the raw material that fuels the money-creation machine.

Whole life cash value grows at a guaranteed, contractual rate. Unlike a savings account where the real return is perpetually eaten by inflation, a properly structured whole life policy offers growth that is largely insulated from the volatility of the broader financial system. Your policy's cash value doesn't go backwards when the market drops.

You can borrow against your policy — and pay yourself back. When you need financing for a car, a business investment, or any major purchase, you can take a policy loan against your cash value. The insurance company lends you money at a known rate, and your full cash value continues to grow as if you never touched it. You repay on your own schedule, and the interest goes back into the system you control — not into a bank's profit margin.

A note on realistic expectations: Infinite Banking is a long-term strategy, not a get-rich-quick scheme. Policies take several years to accumulate meaningful cash value. The concept works best for people who are disciplined savers committed to building generational wealth — and who want to reclaim control over how their money is stored and deployed, regardless of what the Federal Reserve does next.

A Strategy for the Individual

You may not be able to reform the Federal Reserve. You cannot single-handedly end fractional reserve banking. But you can, starting today, make choices that insulate your family from the worst effects of monetary inflation — and that opt your dollars out of a system designed to profit from your deposits.

Even further, a core belief of Austrian economic thought is: the actions of an individual matter much more than we think. Taking action that physically takes capital away from banks and into a monetary system that is not perpetuating this problem is an individual act that has a profound effect on our monetary system. This kind of behavior leads to a blessed way of life. Remember that old movie It’s a Wonderful Life? We should not underestimate the value of one person’s actions. They run deep.

The families who will thrive in the next generation of monetary turbulence will be the ones who understood early that the banking system isn't neutral. It's a mechanism — and like any mechanism, once you understand how it works, you can decide whether to keep feeding it or to build something better for yourself.

That's what we help people do every day.

“If you know what’s happening, you will know what to do.” -R. Nelson Nash