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You must remember, however that money != wealth. The money supply of a nation in no way represents the wealth generation going on in an economy. Printing an e

You must remember, however that money != wealth. The money supply of a nation in no way represents the wealth generation going on in an economy. Printing an extra dollar does not mean the users of dollars became wealthier, it simply redistributes the existing wealth. Barter is also another factor that creates wealth, yet does not have anything to do with the monetary system. Our growing wealth in many ways is in spite of our money and governments. It is worth noting that ever since the USD lost it's scarcity (with the closing of the gold window in the 70's) real wages and quality of life has gone down, not up.

btilly 15y ago
Here is a basic economic fact for you. In periods of mild inflation, people have an incentive to invest money, which leads to growth. In periods of deflation (like the Great Depression) people have an incentive to put money under the bed and wait for it to appreciate. Therefore deflation is horrible for economic growth. Thus money supply does not represent wealth generation, but controlling it does affect wealth generation in a pretty significant way. As for your comment about the 70s, the wealth of this country has gone up dramatically. However there has also been a sharp increase in inequality. Thus causing a small number of people to see wealth rise a whole lot. Whether or not the middle class has wound up better or worse is a subject of debate among economists. (The subject is not nearly as simple as you might think. We think of "inflation" as an absolute number but it is not. The inflation that you experience is relative to the goods that you purchase, and middle class or poor people purchase a different bundle of goods than rich people do.) In any case the result is that it is clear that wealth generation has been humming along very nicely. My personal belief is that the underlying cause of the increase in wealth disparity is the continual drop in the top income tax rate, the reduction of the number of tax brackets, and the increase in the tax rate on the average person. (The effective tax rate on the richest people is now below the median tax rate!) This has limited how much tax policy redistributes money between socio-economic groups. Whether this is a good or bad thing is a political debate for another time. But it is a real thing.
- rubashov 15y ago
  > In periods of mild inflation, people have an incentive to invest money ... In periods of deflation ... people have an incentive to put money under the bed This sounds very plausible but simply does not line up with historical reality. Most of the 19th century saw persistent mild deflation alongside massive investment and growth. Inflationary periods have usually seen unproductive speculation and weak capital investment. The deflation of the great depression was simply the inevitable consequence of a fiat money credit bubble and preceding massive malinvestment. The great depression deflation cannot be characterized as a deflationary tendency of the monetary policy at the time. It inevitably followed the inflationary boom of the 20s.
  - william42 15y ago
    Are you really linking the Great Depression to fiat money when the Great Depression occured while the dollar was still on the gold standard? And there was no «persistent mild deflation» in the 19th century; there were massive swings in value: http://upload.wikimedia.org/wikipedia/commons/2/20/US_Historical_Inflation_Ancient.svg http://upload.wikimedia.org/wikipedia/commons/2/20/US_Histor...
    - rubashov 15y ago
      I'm linking it to the federal reserve act and massive credit growth. Your chart shows persistent deflation in the 19th century with inflationary spikes for wars, notably the civil war.

btilly 15y ago

Here is a basic economic fact for you. In periods of mild inflation, people have an incentive to invest money, which leads to growth. In periods of deflation (like the Great Depression) people have an incentive to put money under the bed and wait for it to appreciate. Therefore deflation is horrible for economic growth. Thus money supply does not represent wealth generation, but controlling it does affect wealth generation in a pretty significant way. As for your comment about the 70s, the wealth of this country has gone up dramatically. However there has also been a sharp increase in inequality. Thus causing a small number of people to see wealth rise a whole lot. Whether or not the middle class has wound up better or worse is a subject of debate among economists. (The subject is not nearly as simple as you might think. We think of "inflation" as an absolute number but it is not. The inflation that you experience is relative to the goods that you purchase, and middle class or poor people purchase a different bundle of goods than rich people do.) In any case the result is that it is clear that wealth generation has been humming along very nicely. My personal belief is that the underlying cause of the increase in wealth disparity is the continual drop in the top income tax rate, the reduction of the number of tax brackets, and the increase in the tax rate on the average person. (The effective tax rate on the richest people is now below the median tax rate!) This has limited how much tax policy redistributes money between socio-economic groups. Whether this is a good or bad thing is a political debate for another time. But it is a real thing.

rubashov 15y ago
> In periods of mild inflation, people have an incentive to invest money ... In periods of deflation ... people have an incentive to put money under the bed This sounds very plausible but simply does not line up with historical reality. Most of the 19th century saw persistent mild deflation alongside massive investment and growth. Inflationary periods have usually seen unproductive speculation and weak capital investment. The deflation of the great depression was simply the inevitable consequence of a fiat money credit bubble and preceding massive malinvestment. The great depression deflation cannot be characterized as a deflationary tendency of the monetary policy at the time. It inevitably followed the inflationary boom of the 20s.
- william42 15y ago
  Are you really linking the Great Depression to fiat money when the Great Depression occured while the dollar was still on the gold standard? And there was no «persistent mild deflation» in the 19th century; there were massive swings in value: http://upload.wikimedia.org/wikipedia/commons/2/20/US_Historical_Inflation_Ancient.svg http://upload.wikimedia.org/wikipedia/commons/2/20/US_Histor...
  - rubashov 15y ago
    I'm linking it to the federal reserve act and massive credit growth. Your chart shows persistent deflation in the 19th century with inflationary spikes for wars, notably the civil war.