THE UTTER INTELLECTUAL bankruptcy of most modern economic policymakers was starkly displayed when European Central Bank boss Mario Draghi recently and unexpectedly announced that the ECB would be making a new round of cheap loans to banks this September to help stimulate the Continent’s sputtering economies.
Despite decades of disappointing data demonstrating that central banks cannot guide the pace of economic activity in the way a thermostat does the temperature of a room, political and economic leaders still persist in pursuing this fantasy. The cost in forgone prosperity is immense. Had central banks and their political masters sought the goal of stable currencies–and had the U.S. dollar remained fixed to gold–the material well-being of the world would probably be double what it is today.
Money is a claim not for something specific, such as a coat, but for anything on sale in the marketplace. It allows you to exchange your labor or goods for other things you might want or need. In effect, money is a receipt for the value of goods and services we produce and may wish to sell.
This is why counterfeiting is illegal. If you print a $100 bill and use it to buy something, you are stealing that something, because that bogus Benjamin wasn’t the result of a good that was actually made. When governments engage in excess money printing, the result is inflation, which is an invidious stealth tax.
All this is why most of what passes for monetary policy wisdom these days is vastly more harmful than the cow flatulence that’s worrying a growing number of Chicken Little politicians.