Funding for ecological transformation: a challenge for economists regarding the injection of money and its consequences

The Second World War led to a massive issuance of money, which resulted in inflation with devastating consequences, remind historian Patrice Booboo and economist David Le Bris in an article for the newspaper "Le Monde," warning about the risks faced by our modern economies.

A few years ago, financing government deficits through money issuance by the central bank was considered an extremely radical proposal. However, since 2015, the Bank of France has purchased government debt amounting to 800 billion euros, seemingly making its increase from 2 trillion to 3 trillion euros painless and prompting some economists to advocate for such issuance to finance investments during the transition period, the priorities of which are so significant that they justify practices similar to a "war economy."

But the historical example of World War II, when funding was needed for the war and then for the German occupation, shows that an additional injection of money has serious consequences.

After 1939, despite the control measures, prices in the official market regularly increased, while prices in the black market skyrocketed. By 1948, prices had risen 20 times compared to 1939! The creation of money also contributed to the rise in asset values. During the occupation of France, stock prices quadrupled, and real estate prices increased fivefold, despite the bombings.

In recent years, prices for financial and real estate assets have also risen sharply, which has affected many economic equilibria, for example, increasing the weight of real estate in the budgets and wealth of households at the expense of young people.

The supply of capital was also increased through money issuance, which lowered the returns on all investments. Of course, banks could provide loans at low interest rates, but due to low margins, they increasingly focused on projects that generated stable income. Because of artificially low real interest rates, resources are allocated inefficiently, and zombie companies continue to exist, while the government can spend money without the need to make politically painful decisions. Certainly, some sectors took advantage of this easy credit, but stagnation gradually spread to the rest. After the war, savings completely turned away from any financial investments due to the losses incurred and preferred to hold gold or real assets. It took decades to restore trust in financial markets.

Finally, such monetary policy affects the labor market, as rising prices deter companies from increasing production and reduce purchasing power, especially among low-wage workers. After the war, the priority for everyone was to make the best use of available resources rather than to earn more income through labor or investments. The current "labor shortages" and "large refusals" may actually be harbingers of such a situation.

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