Introduction Evidently, during the time of revolutionary war, the American colonies were faced with serious financial challenges. In fact, they could not be able to finance the war. This left Americans in a state of financial crisis. At such times, Americans had often opted to print more money to compensate for the enduring scarcity of hard cash. These notes not only helped to ease credit but also facilitated commercial activities (Hall, 78). It is crucial to agree that American Colonies could not raise enough tax revenue to fully fund their war efforts during the revolutionary war; hence, they resorted to “inflation tax” by printing more cash leading to a financial value loss suffered by holders of cash, fixed-rate bonds, and fixed income provisions. The subsequent encroachment of inflation diminishes the value of money hence even if people (some) had more money, the value of their cash was meaningless, a phenomenon similar to tax collection, which reduces the total amount of money one is suppose to have. The congress can decide to print more currency to meet its needs. Central dollars maintained their worth despite the economic strains created by the war. Undesirably, there was no well-organized system put in place to settle the bills. At the beginning of the war, the states imposed a little taxation, although the congress made appeals to make levies payable in continental currency. The congress together with the states intensified this crisis by producing new currency issues. A total of $191,552,380 had been printed by the congress and another $200,000,000 printed by the states by the end of year 1779 (Hall, 77). In addition, the unavoidable war initiated economic disruptions, which resulted into devastating inflation. The value of American currency declined. Here, the reasons behind printing more money as well as what is actually taxed is analyzed and discussed ‘Inflation tax’ and how what it is “ Actually, ‘inflation tax’ is not a legitimate system through which the government gets its revenue; rather, it is a consequence of holding money during the periods of high inflation. Every time more cash is printed by the government, the market gets flooded with money. This eventually increases the rates of inflation. An investor who has securities in form of real estate or any other kind of assets, inflation consequences may be insignificant. However, for individual holding cash, the value decreases subsequent to inflation. The units of decline in the worth of money are referred to as ‘inflation tax’. If the rate of inflation is 10%, any person who holds one thousand US dollars in cash for one year will have to pay 10% of that cash in taxes. This penalizes people holding money in form of cash (mostly small or medium scale earners according to the economists). Quite often, low income earners have fixed pays, incomes or allowances and they do not have a means of evading local inflation by moving their assets to other countries. The loss of monetary value resulting from inflation tax is often indicated by the decline in the purchasing power. When additional money is printed and released to circulate, the government will practically spend less. This indicates the inflation tax mentioned earlier. Actually, printing is the only cost incurred by the government. The cost of manufacturing 50 cents is more than printing each paper of whichever value. Besides paper, th