Written by Ole Emil Augland Several Norwegians feel the economy tightening around them, and economic inequality dominates the political debate. Parties point fingers at scapegoats and propose solutions on the fly. Yet perhaps the biggest engine of inequality is never discussed, most likely because politicians are unaware that it exists: the Cantillon effect and today’s debt‑based fiat money system. The end of the gold standard and the rise of fiat money In 1971 the world abandoned the gold standard completely, and all states switched to a fiat‑money system in which money is created out of nothing. Today debt and money are practically two sides of the same coin. Most Norwegian kroner are now created with a keystroke the moment a bank grants a loan. Banks do not have the money they lend out; as the Norges Bank illustrates on its own pages, the money is “magically” produced the instant the loan is issued. Since 1971, on average 8 % more kroner have been created each year. This dilution of the money supply is the main reason why purchasing power erodes and why we experience a general rise in prices over time. The Cantillon effect – an inequality machine The Cantillon effect explains how an increase in the money supply concentrates wealth. The actors closest to the money‑printing press profit from the expansion, while the majority lose purchasing power. Newly created money is never distributed evenly. Those who receive the fresh money first can spend it before prices rise. As the money circulates further down the economy, prices of goods increase because more units of currency chase the same amount of goods. The farther back you are in the queue, the more expensive everything becomes when you finally receive the same amount of money. In today’s debt‑based monetary system, those who can create money—or have the greatest access to cheap credit—reap the gains. Cantillon hierarchy: losers and winners of money printing The biggest losers are people without assets: students, young adults in the establishment phase, renters, and pensioners dependent on benefits. They live month to month without any surplus to buy into the housing or stock markets. Any saved purchasing power slowly rots away. When the expanding money supply inflates house and share prices, this group is left on the platform. They receive none of the benefits, but bear all the downsides in the form of pricier consumer goods and a vanishing dream of home ownership. When Norway’s money supply (M2) grew by 33 % from January 2020 to January 2023, the economic gap widened considerably. They are playing Monopoly without owning a single street—doomed to lose. The middle class owns a home and perhaps some index funds, which give a modest shield for purchasing power because prices roughly keep pace with the money supply. But since wage growth does not match the growth of the money supply, necessities consume an ever larger share of income. Consequently the middle class must run faster on the hamster wheel to maintain living standards. It is no coincidence that a single income used to be enough to feed a family and buy a house, whereas today two incomes are often required for the same calculation. They play Monopoly but own only a street without hotels, so they lose in the long run. At the top are the few actors who profit from money printing—the “rich.” They enjoy the best loan terms and use cheap credit as a tool to acquire assets that are inflated by the money supply. This is the root cause of growing inequality. Because new money is created as credit, those who can borrow the most are always first in line to acquire the most real value. Politicians claim inflation is good for the middle class because it “eats up” debt, forgetting that the wealthy hold the most loans. Someone with NOK 800 million in debt used to purchase rental properties and stocks benefits far more from debt dilution than a family with a mortgage on their own home. It is not the fault of “the rich”; they merely follow the incentives. When the purchasing power of money melts, one must own what does not melt. The finance sector is another winner. Because money depreciates, saving alone no longer preserves value. People therefore have to earn their money twice: first through labor, then through investments to protect purchasing power. The result is massive financialisation of the economy, with the finance industry extracting huge gains from managing the assets people are now forced to own. States and banks sit on top Most states spend more money than they collect in taxes and fees, covering budget deficits by printing money (Norway is an exception; we use the Oil Fund). General price inflation also raises tax revenues without politicians needing to pass unpopular tax hikes. Both mechanisms are why inflation is called a “hidden tax.” States are also the entities with the most debt, thus profiting the most from debt dilution. Banks’ business model—protected by a monetary monopoly—is based on issuing loans with money that did not previously exist, then charging interest on it. If you print your own thousand‑kroner notes, it’s counterfeit; when the banking system does the same, it is part of monetary policy. It is fair that those who create large value are rewarded. The problem is not inequality per se, but the systematic bias created by the monetary system and the Cantillon effect. Still, there are no members of parliament—from Red (Left) to the Progress Party—who talk about this issue. Isn’t it time our elected representatives learn more about this and put it on the agenda?

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