Is Printing Money Necessary to Deal with Natural Disasters? - AlwaysWealthy

Is Printing Money Necessary to Deal with Natural Disasters?

I recently talked to a friend who questioned the importance of inflation. He mentioned that inflation could be helpful in the event of a major crisis. He specifically talked about natural disasters. Who will come and help in such a crisis? Isn’t inflation beneficial to take the edge off natural disasters and financial crises? Let’s take a look at why this type of thinking is flawed.

Table of Contents

The Illusion that Inflation Creates Wealth

During a natural disaster and other crises people don’t need money or more digits on a bank ledger. What they need is more stuff or in other words goods and services. This includes food, clothes and shelter.

When central banks print money they do not print stuff. Wealth is not measured in money but in the amount of goods and services available to us. Society doesn’t get wealthier when the supply of money increases. It only gets wealthier when more goods and services are produced.

When the money supply grows in relation to the total supply of goods and services this bids up the prices of goods and services because there is more money chasing the same number of goods and services.

The net result is not more wealth but simply a transfer of wealth from one part of society to another part of society. While the idea is that inflation stimulates the economy because people spend more and invest more, the positive effects are temporary, if they exist at all.

Since printing money and inflation doesn’t create wealth, it is only borrowing wealth from the future, the positive effects don’t last very long. As Milton Friedman says, newly printed money is merely a receipt for taxes already paid.

Milton Friedman, Austrian economists and even John Maynard Keynes all understood that inflation is a hidden tax. Inflation allows governments to spend money without borrowing from the public and without raising taxes.

Inflation is a Hidden Tax

So how does this hidden tax work? When governments increase the money supply, purchasing power is transferred from the general public to the government and those closest to the government. Those closest to the printing press can spend the newly issued money before it has circulated in the economy and caused inflation.

Governments and those that receive newly printed money first can spend this money at pre-inflation prices. But once the new money has circulated, it will bid up the general price level. As the money works its way through the economy, prices increase to the same extent that new money was issued.

The end result is that people can buy less goods and services with the same amount of money. Although everyone has more money in nominal terms, their wealth or the amount of goods and services they have access to has not increased.

Wages and Inflation

The second problem is that wages often don’t increase as fast as inflation. Although the general wage level tends to rise when inflation increases, it does so at a slower pace than the general price level rises. The result is that most peoples purchasing power decreases. Their real income drops while their wages go up in nominal terms.

This is why inflation has often been referred to as hidden tax. The tax payment happens in the form of a transfer of purchasing power from the general public to the government. This is an extremely tempting tool for governments to solve problems.

Since few people understand how the economy and inflation works, the government can tax its citizens without much pushback and without having to ask for permission. Unlike a regular tax, inflation is hardly noticed if it stays mild. The negative effects often take years or decades for the general public to become noticeable.

Inflation Increases Wealth Inequality

As time progresses, people have to work more and more and they can afford ever less because their wages don’t keep pace with the general increase in price levels. Anyone who owns assets like real estate, stocks and scarce commodities benefits from inflation.

Asset prices increase and they usually increase before consumer prices go up. The landlord that owns an apartment sees the value of the property increase and can raise rents. The tenant on the other hand has to pay this higher price.

Inflation tends to benefit the rich who own assets at the expense of everyone else who does not. It hurts those that live paycheck to paycheck most. Anyone that primarily holds cash or has no money and no assets is punished by inflation long-term.

So as we can see printing money and inflation doesn’t increase wealth, it simply transfers wealth from the poorest within society to those that are already wealthy. It is the reason why the rich get richer and the poor get poorer.

Are we willing to pay this price to get a temporary relief during a natural disaster or crisis? It seems that this relief comes at no cost. It’s the perfect remedy. But upon further examination a price has to be paid and it’s not cheap.

The History of Inflation is Linked to War and Not Crisis Relief

But didn’t inflation start as a means to help people in a dire situation? Isn’t the whole point of Keynesian economics for central banks and governments to print money and help out the population during difficult times? If we look at the history of our financial system and money that is definitely not the case.

The history of fiat currency and of inflation is a history of war. Most inflationary periods were the result of governments and emperors spending money on wars. The only exception was when during the silver or gold standard the supply of precious metals increased because of improved technology to extract precious metals or new discoveries of precious metals.

Almost every other period in history where governments created money and caused inflation was linked to either revolution or war.

World Wars, Vietnam and the French Revolution

The world went off the gold standard to finance World War I. Before that the United States went on a temporary fiat standard during the Civil War. President Nixon closed the gold window and effectively ended Bretton Woods after the US government spent too much money to finance the Vietnam war.

Another famous episode of hyperinflation, in fact the first recorded episode of hyperinflation, occurred during the French revolution. This illustrates that increases in the money supply and subsequent inflations were not the result of governments intervening in natural disasters or looking out for their citizens. This is a myth created by Keynesian economists.

If we look at the last 200 years, inflation and money printing were equivalent to war. The argument that benevolent governments print money and cause inflation for the greater good of society is not only a myth but historic revisionism.

The first and second world war and the Vietnam war killed more people than all natural disasters combined in the last 200 years. To suggest that governments need to print money and cause inflation to save peoples lives is hypocrisy.

The Right Way to Deal with Natural Disasters, Recessions and Financial Crises

So what is the right reaction and intervention during natural disasters and financial crises? It’s not to print money and steal purchasing power from future generations, including the weakest within society. Spending has to come from savings. Governments need to have a pool of savings that can be used in case of natural disasters. They need to manage the national household in a way that truly benefits the general public without stealing from it in secrecy.

In a sound financial system and economy, consumption and investing is the result of saving and not of credit or money printing. Individuals as well as governments need to save. This pool of savings serves as a resource during times of crisis, including natural disasters.

There are lots of similarities to health. The best way to prepare for viruses, bacteria and illness in general is to keep a healthy immune system. The human body is best at dealing with crises by preparing in advance through healthy habits.

Financial And Monetary Health

The same is the case for economic crises and natural disasters. Healthy financial habits, which includes saving money and not spending more than one can afford, is the right and only sustainable way of dealing with and preparing for a future crisis.

We all know that taking medication is not a substitute for living a healthy lifestyle. Prevention is the best cure. Living an unhealthy lifestyle, having a weak immune system and then depending on medication to battle illness is not a sustainable way to keep the human body healthy. The chemicals themselves can further weaken the immune system in the long-term.

The same is the case with inflation. While inflation might bring temporary relief, in the long run it further weakens the economy and society. And the patient that is taking the medication, in this case the economy, gets evermore dependent on the medication.

The solution is not to stay hooked on the medication and to keep treating symptoms but to return to the fundamentals of sound money and economics and healthy financial habits.


As we saw, money printing and inflation are not only not necessary to intervene in natural disasters and financial crises but it makes the problem worse long-term.

Furthermore, to suggest that printing money and inflation are the result of benevolent governments looking out for the greater good of society is a myth and not consistent with history.

Every episode of inflation, which was not caused by improved technology to extract precious metals or new discoveries of precious metal reserves, was the result of war or revolution.

The history of inflation is a bloody history. It’s a history of death and destruction, not of relief and help.

June 25, 2022