As we have discussed, inflation is not possible in a barter-only economy. In such an economy, there is no money (currency) to inflate.
Taxation in a barter-only economy is crudely possible, but not inflation.
We can safely assume that the idea for a ruler to scam his subjects with inflation came after the invention of money. Although, there remains some possibility (very slight) that some early rulers arrived at the idea first and thereafter developed a currency as a tool to facilitate the scam.
Certainly, early rulers invented money as a source to facilitate taxing. As a society grew, the complexity of its economy was just too burdensome for barter to accommodate taxation beyond a certain threshold of volume. And as I’ve explained before, a ruler’s wealth can only grow in a barter-only system to the extent that he can store his accumulation of traded-for goods. Money solves this problem.
For instance, if a ruler, through taxation in a barter-only system, acquires horses, cattle, pigs, chickens, ducks, sheep, potatoes, lemons, watermelons, etc., these must be either used before spoilage or maintained at great cost. A ruler can, up to a point, make use of these goods, but, in comparison, a form of money requires much less maintenance.
Beyond the taxation advantage of money, eventually, a ruler sees the enormous opportunity of inflation.
A good description of inflation is that it is a “hidden tax.” At least this is a good start, although it doesn’t expose the mechanism as a hidden theft. And the slogan that inflation is “too much money chasing too few goods”—although inaccurate as I have previously explained—does the matter of theft even less justice.
Imagine that I meet you at the front door of your house and demand that you give me your money at gun point. As this is not subtle, it is likely to fail. I will be arrested and punished.
But if I can get the tax collector to take your money and then give it to me, this “transfer of wealth” comes under the auspices of the government and is no longer deemed the theft that it might be construed. But there are limitations to this legal thievery.
One limitation is imposed by the government’s taxation statutes. And these tax laws are effectively bound by the principle that tax evasion increases disproportionately as tax rates increase. [Exactly this happened in 16th-century Spain which hastened the eventual collapse of the Spanish Empire.] Another limitation is that there are often many people within a society that are exempted* from taxation. But there is a way around this…
[*All the clergy (I believe), government employees, and nobility in Spain during the 16th-century were exempt from taxation. The government swelled enormously to employ so many avoiding taxes, and farmers immigrated to the Americas to escape the taxes.]
But what if the ruler found a way to surreptitiously steal purchasing power from ALL of his subject’s without physically taking the money from them? What if the ruler could steal AND simultaneously allow everyone to keep their money in their pockets as they sense nothing amiss? The purchasing power of a person’s money would simply diminish as the ruler used it to obtain what he wanted.
Inflation is truly insidious. And there are no exemptions to the inflation (except for slaves and prisoners I suppose)! It’s magic money… Brilliant! Sublime! It’s a reverse Rumpelstiltskin!
And the ruler and his rich inner circle protect themselves from the economic damage caused by the inflation by holding assets like real property and precious metals.
[Rumpelstiltskin is a German fairy tale. It was collected by the Brothers Grimm in the 1812 edition of Children's and Household Tales. The story is about a little imp who spins straw into gold in exchange for a girl's firstborn child.]