Some climate scientists, concerned with the warming impact of rising levels of carbon dioxide and other greenhouse gases in the atmosphere, have proposed that to keep temperatures cool what is needed is more pollution. More specifically, they suggest that more particulate pollution in the upper reaches of the atmosphere would reflect the sun’s radiation back into space and thereby have a cooling effect, as has been demonstrated in the past when large volcanic eruptions have led to years without summers. In a similar way, policymakers across much of the developed world, concerned about rising inequality, are recommending the introduction of a guaranteed minimum income. However, just as it appears senseless to send soot into the air to correct the atmospheric damage wrought by over a hundred years of fossil fuel burning, so too is it senseless to expect easy money for the poor to correct the damage caused by over 30 years of easy money for the banking system and the rich. The creation of money by central banks and the banking system has predictable consequences. As the economic thinker Henry Hazlitt wrote in his 1965 book, ‘What You Should Know about Inflation’ (keeping in mind that for Hazlitt, inflation refers not to an increase in prices but rather to an increase in the quantity of money): ‘Inflation makes it possible for some people to get rich by speculation and windfall instead of by hard work. It rewards gambling and penalizes thrift. It conceals and encourages waste and inefficiency in production. It finally tends to demoralize the whole community. It promotes speculation, gambling, squandering, luxury, envy, resentment, discontent, corruption, crime, and increasing drift toward more intervention which may end in dictatorship.’ From the early 1970s onwards, the ability of central banks and the banking system to create money from nothing has distorted the incentives upon which healthy market economies depend. While the reasons for expanding the quantity of money in circulation always seem benign, be they ‘to avoid a financial crisis’ or ‘to reduce unemployment’ the truth is that every dollar so created increases inequality while simultaneously sapping productivity.
This post was published at Mises Canada on OCTOBER 19, 2016.