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The Mirage of Inflation 1556And this is precisely its political function. It is because inflationconfuses everything that it is so consistently resorted to by our modern“planned economy” governments. We saw in chapter 14, to takebut one example, that the belief that public works necessarily createnew jobs is false. If the money was raised by taxation, we saw, then forevery dollar that the government spent on public works one less dollarwas spent by the taxpayers to meet their own wants, and for everypublic job created one private job was destroyed.But suppose the public works are not paid for from the proceeds oftaxation? Suppose they are paid for by deficit financing—that is, fromthe proceeds of government borrowing or from resorting to the printingpress? Then the result just described does not seem to take place.The public works seem to be created out of “new” purchasing power.You cannot say that the purchasing power has been taken away from thetaxpayers. For the moment the nation seems to have got something fornothing.But now, in accordance with our lesson, let us look at the longerconsequences. The borrowing must someday be repaid. The governmentcannot keep piling up debt indefinitely; for if it tries, it willsomeday become bankrupt. As Adam Smith observed in 1776:When national debts have once been accumulated to acertain degree, there is scarce, I believe, a single instanceof their having been fairly and completely paid. The liberationof the public revenue, if it has ever been broughtabout at all, has always been brought about by a bankruptcy;sometimes by an avowed one, but always by a realone, though frequently by a pretended payment.Yet when the government comes to repay the debt it has accumulatedfor public works, it must necessarily tax more heavily than itspends. In this later period, therefore, it must necessarily destroy morejobs than it creates. The extra heavy taxation then required does not