Nothing is as enticing as a free lunch. The idea of getting something for nothing surely is appealing to almost everyone. You want a new coat, or a nice meal at your favorite restaurant, or a dream vacation on an exotic island, or…. Well, there is no end to the list of things we would all like to have with no cost attached, with nothing to have to give up to get what we want.
Economists are usually considered the perennial party-poopers, the “negative wave” guys constantly reminding people that often nothing is as expensive as something that is said to be for “free.” There just is not enough of everything that we want, including the resources out of which the things we want are produced. Economists keep bringing up the dreaded “S” word — scarcity.
What are we to think, then, when a Nobel Laureate economist, Joseph E. Stiglitz, and his coauthor, Mark Weisbrot, tell us that there is “A No-Brainer for Global Growth and U.S. Jobs” (Project Syndicate, January 10, 2025) at almost no cost and all benefit to the world. All that is needed is for the International Monetary Fund (IMF) to digitally print more of a version of paper money known as Special Drawing Rights (SDRs). It will end debt and starvation in poor countries and create jobs in America and other developed nations, they say, because the poorer ones will have more monetary means to demand increased amounts of goods and services from the more industrialized parts of the world.
The “miracle” of paper monies
Put more money into the hands of governments, especially the governments in poorer and less developed countries, and many of the woes of the world would be solved. Stiglitz and Weisbrot tell us:
Many countries are facing debt crises, with the result that some 3.3 billion people live in countries that spend more on interest payments than on health care, while 2.1 billion people live in countries that spend more on interest than on education….
The additional reserves created by new SDRs would enable more imports of food and medicine, as well as investments in badly needed public-health equipment and infrastructure…. Issuing SDRs can save hundreds of thousands of lives around the world, and unlike most aid, it comes with no new debt, and no strings attached…. Exports to developing countries total around $1 trillion, and if these countries got an infusion of reserves, they will import even more.
What is this “magic money” that will turn water into wine and make five loaves and two fishes into enough food to feed billions of mouths?
SDRs are not themselves an actual money usable by member governments in the IMF. They are a form of “asset” that is added to the member government’s accounts with the IMF, which then may be traded for selected international currencies that can be used for market transactions.
SDRs as an IMF tool for inflation
As free-market economist Henry Hazlitt (1894–1993) explained it in From Bretton Woods to World Inflation (1984):
In 1970, [the IMF] created a new currency, called “Special Drawing Rights” (SDRs). These SDRs were created out of thin air, by the stroke of a pen. They were created, according to the Fund, “to meet a widespread concern that the growth of international liquidity might be inadequate” (a Keynesian euphemism for not enough paper money).
Instead of each country printing its own paper money, and so depreciating not only the purchasing power of each unit of that money in terms of goods, but also in terms of other currencies, why not have all the countries collectively issue a new unit of paper money, permit this new money, these “SDRs,” to be used as reserves against which each country could issue more of its own paper money, call this new money, “paper gold,” and get each country to agree to accept a given amount of it?
We are told on the website of the IMF how SDRs are created and work:
Special Drawing Rights (SDRs) are international reserve assets created by the IMF to supplement the official reserves of member countries. The value of the SDR is based on a basket of five currencies [U.S. dollar, 43.38 percent; the Euro, 29.31 percent; the Chinese Renminbi, 12.28 percent; the Japanese Yen, 7.59 percent; and the British Pound Sterling 7.44 percent]. SDRs are allocated to IMF member countries in proportion to their relative share in the IMF. Countries can exchange SDRs for hard currencies with other members….
The IMF allocates SDRs. Country A receives an amount in proportion to its share in the IMF. Country A can exchange its SDRs with country B for foreign currency reserves. Country A can then use these foreign currency reserves to purchase [imported goods, or pay off national debt obligations to its international creditors, or fund domestic investment projects].”
Since they were first introduced, the IMF has had periodic creations of SDRs, the most recent ones being during the global financial crisis of 2008–2009 and the Covid lockdowns and shutdowns of 2020. A total of 660.7 billion SDRs have been created, or about $943 billion. Stiglitz and Weisbrot call for an additional $650 billion of SDRs to be manufactured out of thin air in the near future.
The entire SDR institutional process is a government-to-government affair. Private individuals are not allowed to own or use SDRs. The trades and transfers can only occur between the IMF and member governments or between those member governments themselves.
Scarcity is why there are no free lunches
It is one of the oldest political mythologies and economic fallacies that money is wealth, and if there is more money with which to buy things, peoples and governments will be richer and better off. But wealth and riches are not produced by creating more units of money because money is merely the medium through which real wealth and riches — desired goods and services — are exchanged, one for the other. This real wealth and riches can only come into existence through work, savings, and investment. And the means to do so are scarce.
Any student who takes an economics course is soon told that the inescapable condition in which human beings find themselves is that the things they want and desire are greater in number than the means at our disposal to attain them. For example, there are only 24 hours in a day, and some of those hours are taken up with sleep. So we are left with the hours during which we are awake to do all the things we want to do. Even when it seems that in a particular situation we have some “time on our hands,” we are still left to decide what we will do with that seemingly “free” time, because, in reality, there is not enough time to do all the things we could do.
Everything we do ends up requiring trade-offs.
But time is not the only thing that is scarce. The resources and raw materials out of which desired goods and services are manufactured are all limited relative to the alternative and competing uses for them. The land upon which to build and do things only goes so far. Our mental and physical labor — and the skills and talents with which to do things — have their limits.
Everything we do, therefore, ends up requiring trade-offs. If we do more of one thing, there are fewer resources and labor time left over for other things. Fulfilling more of one desire or goal means that some other(s) will have to be left undone and unsatisfied, at least for a while. Of course, these trade-offs are usually not categorical, that is, either/or, though sometimes they can be. If John marries Sally, he cannot legally be married to Joan at the same time. Choosing one excludes the other.
Most of our choices, however, are incremental, that is, a little bit more of one thing at the expense of having a bit less of something else. If you buy that additional pair of shoes, you may have to forgo purchasing that extra jacket you wanted. If you stay another hour over lunch with a friend, you miss being at the start of an important meeting back at the office. In other words, most of our choices, as the economist says, are “at the margin.”
This is why there are no free lunches, even when someone else is picking up the check. You are giving up what you might be doing instead if you were not with that other person at a restaurant. Everything, therefore, has its opportunity cost, the next best alternative that you forgo, give up, trade away, in doing something else with your time, labor, and resources.
Money merely facilitates the trading of goods for goods
Usually, with reflection, all of this is readily seen when we think in terms of things more or less directly traded or given up to get something else. Thinking about how to spend all or a part of a day, a farmer may either clear some land to increase his crop or work on mending some fences through which stray animals are getting through and damaging his property. He can have either more food at the end of the harvesting season by clearing a bit more land or less damage to his property by fixing the fences.
If Sam wants what Bill has, he will have to give Bill something in trade that Bill wants more than what Sam desires from him. Sam may have to devote time, effort, and resources to make a pair of shoes to get a coat that Bill can manufacture. If Sam wants to buy, he must have something to sell; if he wants to demand a certain product or service, he must have the ability to supply a good or service at a price to get it. Likewise, Sam’s capacity to demand and buy Bill’s coat and a variety of other desired things from other potential trading partners is limited, again, by Sam’s available resources, labor, and time. In other words, Sam bumps up against scarcity, as do all his possible trading partners.
This is not in any meaningful way changed by the fact that we normally buy and sell things indirectly through a medium of exchange, or money. I do not directly go into a nearby supermarket and offer to trade, say, four economic lectures for a shopping cart full of food items. If I did, I fear that I would go many days, if not weeks, with little or nothing to eat. The number of people interested in hearing a talk about scarcity, trade-offs, and costs are, alas, fairly limited.
So instead, I sell my teaching services to an institution of higher learning interested in having someone talk about such things in economics to a class full of students required to take the course that leads to a degree. The institution pays me in money, and I use that earned money to reenter the marketplace as a consumer demanding all the things that I want to buy. All those with goods to sell willingly do so for the money I can offer them, because they know, in turn, that they can use that money to buy the things they are interested in purchasing, which may not include learning anything about economics.
While all that is bought and sold is facilitated by the convenience of a medium of exchange, at the end of the day, it is Sam’s shoes that trades for Bill’s coat. It is my economics lecture services that pay for my shopping cartful of food items. Sam’s shoes trade for money and the money is traded for a Bill’s coat. I sell my teaching services for money, and I use the money to buy other things that I want. But it is real goods and services that trade for other goods and services.
Now, of course, all of us wish we had more money, because money is that medium the possession of which enables us to purchase all the things we want to buy. However, I can only increase my personal supply of money by producing and offering more goods and services that others may want to buy and for which they are willing to pay a money price. And those who want what I have for sale can do the same only by reciprocally producing and offering to sell what I and others want.
Increasing goods on the supply-side increases wealth
The total value of any person’s money income represents the maximum claim he can make against the production of others. If George earns a total money income of, say, $10,000, that sets the limit on other people’s goods he can buy from them, given the prices at which they are offered on the market. The money value of our outputs are the constraint on our money value of inputs purchasable from others.
If there is no increase in the quantity of money available in the society, the only way people can improve their standards of living is by devising ways of making more and better goods at lower costs. Suppose that Susan has been making a good that sells for $5 per unit and she sells 1,000 units of it. Her money income is $5,000. But suppose she devises a way to produce it for a reduced per unit expense and can now sell it for $4 per unit instead.
What will happen to her money income depends upon what economists call the price elasticity of demand. If at the lower $4 per unit price she now sells 50 percent more, that is, 1,500 units instead of 1,000, her money income would be $6,000. Of course, it could happen that at that lower $4 per unit price, she only sells 1,200 units. Then her total money income would be only $4,800. Either way, consumers are able to purchase more of this good at a lower per unit price, improving their standard of living. It is just that in the latter case, consumers do not find it attractive enough to purchase an amount sufficient to increase Susan’s total money income. Instead, they buy 1,200 units at $4 a piece and save $200 to spend on other things they previously could not afford to buy when they were buying 1,000 units for $5 a piece.
Susan may have to either devise a way to reduce her costs more, so that $4,800 of money income can cover her expenses and generate more income, or she may have to shift into producing and selling something else that consumers value more than the particular good she has been manufacturing. If one producer/seller after another is doing the same as Susan, people, over time, see rising standards of living through being able to purchase more desired goods at lower and lower money prices. Given the money incomes and revenues they earn at their respective lower selling prices, some may expand what they are doing, while others may have to shift into producing and selling other things.
Either way, at the end of the day, people can consume more only by producing more and offering it at prices at which buyers are willing and able to purchase them. Even if the best that Susan can do is make that product that now earns her $4,800 instead of $5,000, she, too, will benefit from the overall improvements as the goods she buys are offered at lower prices over time. In real buying terms, that $4,800 she earns may very well represent more than her previous $5,000 income could buy.
Money is an invaluable market institution that enables a complex system of division of labor to develop, through which people may specialize their skills, ability, and knowledge, and trade their wares with each other for mutual benefit without the barriers of direct barter exchange. However, people’s lives are made better by increasing their capacity to produce more and better goods and services by devising ways of using the scarce means at their disposal (land, raw materials, labor services, capital goods) more productively over time. But merely increasing the number of units of money available for people to spend does not, per se, increase the available resources to produce more of those desired things.
More money can redirect production, not increase it
Suppose that five people are at an auction and a desired item is put up for sale. Further suppose that each of those individuals has $100 in their pocket. Clearly, the maximum price that any one of them can offer for it is $100. Now suppose that “miraculously” each reaches into their pockets and finds that the $100 has turned into $200. The maximum that could now be offered would be $200. The doubling of the money supply may double the selling price in the bidding process, but it does not change the amount of the items for sale.
Now, it might be replied that this may be true for a Rembrandt painting because no matter how high the price might go for a Rembrandt, the total number of his paintings cannot be increased since Rembrandt is no longer among us. But, surely, some say, if we increase the sum of money in some or many people’s pockets — and increase the demand expressed through the ability to offer higher money prices for desired goods and services — we will bring forth greater outputs.
Reading Joseph Stiglitz’s and Mark Weisbrot’s words, you would certainly think that is all that is needed: to simply create a “stimulus” for more goods to be forthcoming to ward off poverty and starvation — or pay for infrastructure investments — or provide better health care or education — by increasing the number of SDRs at the disposal of governments. Here we have, again, what John Maynard Keynes said in his 1943 proposal for the establishment of the IMF — that an international form of money would perform the “miracle … of turning a stone into bread.”
But in the real world of limited supplies of virtually all desired things due to the scarcity of the means to produce them, such miracles cannot happen. It is true that if the government of Backwardistan were to use its quota of SDRs to acquire one of the international currencies into which they are convertible, it could then import more goods into its country. But it can only do so by bidding away some portion of those goods’ global supply from others in the international market. There would be fewer of such goods to satisfy the demands of others on the global marketplace. If such greater money demand induced the producers of the affected goods to expand their production and supply, the resources, labor, and capital to expand their output would have to be withdrawn from producing and supplying other goods. Having more of commodity “X” inescapably means there would be fewer “Y” and “Z” commodities.
More SDRs mean more money and more inflation
But what about the governments that had sold some of their SDR reserves to Backwardistan? Wouldn’t they have less of their own currencies in their own countries, so that their money supplies would decrease? No. Since SDRs are reserve “assets,” the government that sold some quantity of its own currency could and would simply replace the amount of its own currency in circulation or in its banking system that had been “exported” to Backwardistan. Or as is more likely the case, the government buying the SDRs would simply pay for them by increasing the supply of its own currency. And nowadays, that means simply the click of the mouse on a computer screen in the offices of that nation’s central bank.
Thus, SDRs are simply a mechanism by which to increase global currencies to meet the demands of governments to spend more than they are able to either collect in taxes or borrow from domestic and international creditors. It is a way for governments to continue to live and spend beyond their means. What Stiglitz and Weisbrot are calling for is increasing the global quantities of SDRs to facilitate the general increase in paper monies around the world.
Parenthetically, Stiglitz and Weisbrot never ask why those underdeveloped countries are so poor. That is because to a great extent, many of these countries suffer from various degrees of poverty due to the power-lusting and plundering policies of those very governments to whom they want to give more SDRs. But as proponents of many of the very interventionist and welfare-statist policies producing this state of affairs, they have no interest in pointing the finger of responsibility at themselves.
Notice, also, that Stiglitz and Weisbrot never mention scarcity or rising prices as more units of money around the world are chasing after goods and competing for the resources to produce them. They implicitly presume a post-scarcity world. There are untapped and seemingly unlimited quantities of goods and means of production that have not been drawn into use due to the lack of money enticing them into use. There seems to be only five loaves of bread and two fishes, they say, but if we increase the quantities of internationally used currencies in global circulation via an increase in the amount of SDRs available to governments, the limited and scarce bread and fish will miraculously feed hundreds of millions of poor people all around the world.
This is simply demagoguery, a version of Keynes’s own notion of “money illusion,” that people only think in terms of the number of units of money in their pocket and not the real buying power of what those units of money can buy in the marketplace. And, no doubt, if the inevitable price inflation followed the increases in the international money supplies, Stiglitz and Weisbrot would point the accusing finger at those damn greedy corporations and businessmen who raise their prices at the expense of “ordinary people.”
Higher taxes on profits and price controls would be their answer to the very problem their own SDR monetary policy created. Stiglitz’s and Weisbrot’s world is one of all benefits and no costs, just free lunches and economic miracles. Just print enough money, and the land of milk and honey awaits you.
Freedom and prosperity by separating money from the state
This has been the sad story for virtually all of human history. SDRs are just one of the latest means by which governments fleece the public by debasing the currency. Governments used to clip coins to steal the wealth of their subjects. Later, they took advantage of bank notes in circulation as convenient money substitutes to have central banks print more of them to cover war expenditures and the expenses of welfare statism.
Nor can we expect any end to it until governmental power, control, and influence over banking and monetary systems are repealed. That is, an end to government paper monies and government-managed central banks, but no politicians and very few economists even imagine an end to government control over money. Almost 50 years ago, however, Austrian economist and Nobel Laureate Friedrich A. Hayek proposed just that in a monograph entitled Denationalization of Money (1976, revised ed., 1978):
When one studies the history of money one cannot help wondering why people should have put up for so long with government exercising an exclusive power over 2,000 years that was regularly used to exploit and defraud them…. I do not think it is an exaggeration to say that history is largely a history of inflation, and usually inflations engineered by governments and for the gain of government….
From the Roman times to the 17th century, when paper money in various forms begin to be significant, the history of coinage is an almost uninterrupted story of debasements, or the continuous reduction of the metallic content of the coins and a corresponding increase in commodity prices…. The introduction of paper money provided governments with an even cheaper method of defrauding the people….
There can be little doubt also that the ability of central governments to resort to this kind of [inflationary] finance is one of the contributory causes of the advance in the most undesirable centralization of government. Nothing can be more welcome than depriving government of its power over money and so stopping the apparently irresistible trend towards an accelerating increase of the share of national income it is able to claim…. What we now need is a Free Money Movement comparable to the Free Trade Movement of the 19th century….
This should be the goal for those who do not believe in fairy tales like those of Joseph Stiglitz and Mark Weisbrot. We need a complete separation of money from the state, that is, the entire depoliticization of the monetary and banking system by putting the selection of what shall be used as money and who supplies it completely in the free choices of market participants. Those choices should not be in the hands of governments who wish to use monopoly control over the money and banking system as the means to manipulate it for their own fiscal purposes and for the vast networks of special interests who live off the largess of ever-growing government.
This will be no easy task. Ludwig von Mises, Hayek’s mentor and friend and his fellow Austrian economist, explained a little over a hundred years ago, in 1923, at the height of the Great Inflation in Germany, what the ultimate preconditions for its success would have to be:
The belief that a sound monetary system can once again to attained without making substantial changes in economic policy is a serious error. What is needed first and foremost is to renounce of all inflationist fallacies. This renunciation cannot last, however, if it is not firmly grounded on a full and complete divorce of ideology from all imperialist, militarist, protectionist, statist, and socialist ideas.
The ideological climate of opinion and policy today is not much different, unfortunately, from the one Mises confronted in 1923. But the goal of a monetary and banking system totally free from the machinations of the Joseph Stiglitz’s of the world is the only path to a truly free and prosperous society.
This article was originally published in the April 2025 issue of Future of Freedom.
