Living standards have taken a big step backward recently and are trending even worse.

What is really going on?

Doug Casey: People have a natural inclination to blame the producers—the butcher, the baker, and the gasoline maker—for higher prices. But that's a huge mistake. Higher prices (barring a natural catastrophe that destroys real wealth) are 100% caused by increases in the money supply. It's perverse that producers are blamed for price inflation while the Fed and the government are lauded for fighting inflation. The public's perception is the exact opposite of reality.

Producers fight the effects of government currency debasement. Surprisingly, few people confront the fact that the government doesn't create anything of real value; it doesn't weave, spin, or sew. It only produces regulations, taxes, fiat currency, and fiat credit. These things take prices higher. Inflation of the currency, which is to say increasing the amount of purchasing media above the increase in real wealth, amounts to the State subtly stealing capital and wealth from its subjects.

But reality be damned. The average citizen sees his government not as a predator, but a protector. He's been taught that in "our democracy," the government is "We the People." Producers are blamed as exploiters. The real enemy, however, is the State and its central bank, the Fed.

There are only two ways to survive: By producing and trading, or by stealing what others have produced. Currency inflation doesn't "stimulate" the economy; it's a fraud permeating society. It works to overturn trust and standards of morality. It's a poison that creates a class of parasites and eats away at the middle-class citizen's standard of living.

In a truly free market society, prices would drop constantly, and the standard of living would rise. The Fed's target of 2% inflation is not only crazy but evil.

International Man: How does inflation erode ethical standards? You mean it leads people to cut corners, lie, cheat, or even steal as they try to maintain their living standards?

Doug Casey: Absolutely. The prime directive of all living things is: survive! That's true whether we're talking about governments, corporations, individuals, or amoebas. They'll do whatever necessary to survive. In the case of individuals and corporations, survival is about producing.

Inflation is about theft—not production. It's a subtle form of theft, like embezzlement, that's hard to diagnose. Theft discourages production. If there's less and less production, more and more people resort to theft in order to survive. Theft breeds more theft.

Economics is the study of how men produce and consume in order to survive. The average person may not understand much about economics, but they have an intuitive understanding of morality. When the currency loses value they sense a theft. Especially if they see the "elite", the heads of governments and large corporations, becoming wealthy. The elite set a country's moral tone. They're also in a position to profit from inflation. It's said that a fish rots from the head down; the same is true of a country.