Episode 26: There Is No Alternative But Inflation — Neal McSpadden on the Cantillon Effect, Inflation Taxes, and Hard Money
You can't save your way out of inflation, and the tax code makes you pay on it anyway.
In this episode, Joe Withrow sits down with Neal McSpadden of Tax Sherpa to talk through the ideas in Neal's article, "There Is No Alternative But Inflation." Joe read it and found it put into a clear framework a set of ideas this show has circled for a long time.
Neal's starting point is simple. Savings and investing are two different things. In a system where the money supply grows every year, cash in the bank loses purchasing power, so everyone who wants to keep up has to invest. Neal traces how we got here, from pensions to 401(k)s, and why the burden of beating inflation moved from institutions to individuals.
From there he explains the Cantillon effect: when new money enters the economy, the people closest to the source spend it first, at yesterday's prices. By the time it reaches everyone else, prices have already moved. The COVID stimulus checks, Neal argues, were a rare real-time demonstration. The money reached everyone at once, and prices rose everywhere at once.
Then the conversation turns to taxes. Neal tells the story of a client who sold a California home she had owned for years and owed about $80,000 in tax. When he ran her purchase price through the Bureau of Labor Statistics inflation calculator, her real gain was close to zero. She paid tax on inflation. Neal and Joe discuss why that is so unfair, why it penalizes long-term investors most, and the Senate proposal to index capital gains to inflation.
Next, Neal lays out his three-part test for assets that hold up when money loses value: they are financialized, meaning they attract credit and capital from the system; they carry inflation-sensitive yield, like an apple orchard whose output reprices with the market, unlike a bond with a fixed coupon; and they have a supply-and-demand imbalance working in their favor. He runs real estate and stocks through that filter and explains where each one can fail.
The conversation moves into hard money. Neal explains what junk silver is, how U.S. coinage lost its silver, and why he became interested in Chinese numismatic coins, where the supply of coins minted in the 1990s is tiny compared with the number of potential collectors. He also introduces his "whale rule": concentration is how people make real money, and diversification is how they protect it.
The final stretch covers why owning and running your own business is an inflation hedge, why DOGE-style spending cuts keep running into Congress, and what that means for how much inflation the government can generate. Neal closes with a simple message: treat your personal finances like an investment, and learn the tax strategy that lets you keep more of what you build.
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In this episode:
- Why saving is not investing, and why cash can't keep up in an inflationary system
- The Cantillon effect: how new money moves through the economy and who benefits first
- COVID stimulus checks as a real-time Cantillon case study
- Why capital gains tax lands on inflation-driven gains, with a real client example
- The Senate proposal to index capital gains to inflation
- Neal's three tests for inflation-resistant assets: financialization, inflation-sensitive yield, and supply-and-demand imbalance
- How the Federal Reserve and money supply growth fit into the picture
- Real estate and stocks as inflation hedges, and where each can fail
- Silver as hard money: what junk silver is, how U.S. coinage lost its silver, and the case for Chinese numismatics
- The "whale rule": why focused bets build wealth and diversification protects it
- Why owning and running your own business is an inflation hedge
- Why government spending keeps rising despite DOGE, and what that means for inflation
- "Buy, borrow, die" and the case for treating your personal finances like an investment
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Connect with Neal McSpadden:
Website: https://go.taxsherpa.com/plsummit
Article: https://nealmcspadden.com/thinking/no-alternative-but-inflation/