In light of the current crisis, paper currency printing has reached record levels, which in one way or another will lead to high rates of inflation and increase in prices, and thus the transfer of wealth between groups of society.
In an article for the French newspaper Lesechos, the financial expert Philippe Oran, director of the economic studies department at the French Banque Postale, says that the process of creating money does not affect the size of wealth;
But it redistributes it.
Oran suggests changing the famous saying of the American economist Milton Friedman, "everywhere and at all times, inflation is a monetary phenomenon" to "the creation of money is everywhere and at all times the transfer of wealth."
It does not increase wealth
The author affirms that dealing with this issue requires returning to the root of the issue, which is the nature of money as a unit of account. In the past, exchanges in the barter economy required parity and proportionality between two producers, and money came to facilitate commercial operations by setting a price for each product with a reference quantity.
But setting the standard does not produce wealth. Switching from using the French franc to the euro, for example, did not create wealth overnight, nor did it destroy it.
Creating more money and distributing it more evenly among members of society is theoretically a fair and impartial process.
But creating money does not mean increasing wealth.
This is similar to adding water to mint, as the actual amount of mint remains the same, and what can be controlled is the level of dilution, and it can be said here that the amount of money is water, and the rate of inflation is the degree of dilution, so the creation of money does not at all mean the creation of wealth.
Because what we have added is water, not mint, and in the long run, wealth can only come from the return of the sums invested, and the way in which that money is used, not from its quantity.
Money creation does not affect wealth;
But it redistributes it (Reuters)
Inflation effects
If inflation doesn't have an effect on real wealth, why worry?
The author explains that in addition to the possibility of a record high inflation rate according to certain mechanisms, the direct result is an increase in prices, which affects the members of society disproportionately.
In fact, the world is not perfect, and the distribution of wealth is not at all fair. For example, the sovereign debt monetization policy adopted by the European Central Bank provides cash liquidity to the countries of the region, and governments, according to recovery plans, support the most affected groups and companies threatened with bankruptcy.
This means distributing funds unevenly, and the prices of goods and services adjust to liquidity in an uneven manner, according to specific competitive relations between producers and between employees and companies.
Ultimately, everyone's situation will change depending on how they are affected by public policies, subsidies, taxes, and commodity prices.
Society can be divided into a number of categories, according to these economic influences. There are those with large savings who benefit from inflation through high asset prices, and those with low incomes who are looking to buy assets are harmed, and retirees who receive semi-fixed salaries.
The employees of the commodity-producing companies also enter the danger circle with the decrease in the competitiveness of their companies in the international market, and of course, these categories intersect among themselves, and the effects of inflation diverge, which makes assessing the effects on individuals difficult.