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Because: 1) taxation destroys money. 2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so th
by alxmng 4y ago
Because:
1) taxation destroys money.
2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so there’s $200/100 apples. Inflation might occur. But if you make 100 more apples, so there’s $200/200 apples, the ratio of money to goods didn’t change, and you wouldn’t get inflation. That’s an extremely contrived example, but it gets the point across.
Considering both of those factors, I hope it’s understandable that printing money doesn’t necessarily cause inflation.
- hnuser847 4y agoEven in this example where inflation doesn’t occur, consumers will never benefit from the productivity gains that allowed producers to make more apples. Something clearly changed that allowed more apples to be produced. Maybe a significant amount of capital was invested in more machines, or a new, faster growing cultivar of apple was developed. In any case, the entire benefit of the free market economy is that competition creates an arm race for better products at lower prices. When the central bank steps in and creates a bunch of new money, it destroys any benefit of increasing productivity, since apples with always be $1, regardless of whether 100 are produced or 1,000.
- notahacker 4y agoSure, that's why no consumers have ever benefited from any productivity gains ever... Central banks don't fix the price of apples. They simply make it possible/easier for cultivators of apples to obtain capital to invest in more machines or developing new cultivars of apples. The alternative is that cultivators have to try to find the capital by borrowing more expensively from a fixed supply of stored wealth. From the point of view of people holding the stored wealth, the arms race for better products at lower prices becomes a zero sum game where it's a winning move not to just hold onto the cash and let other people take the risks. Unsurprisingly, this does not benefit consumers, or the productive.
- bubbleRefuge 4y agoCentral Banks allow us to pay each other and regulate banks to operate in the best interest of the economy by making 'good' loans. You are describing a gold standard or fixed monetary system. These systems have lead to deflationary collapses time and again. Without getting off of the gold standard as it was defined we would have never funded WW2 which was the larges money printing event in US history equating to 22% of GDP in government deficits.
- alxmng 4y agoYes, this is an important point: it matters how new money is created. $100 isn’t created and given to everyone. It’s created and given to the apple producers to make more apples. This is government spending.
- pclmulqdq 4y agoHence the new budget designed to tax everyone to the gills. The fed and the government is coming to terms with the fact that they can't magically conjure up growth.
- bubbleRefuge 4y agoSee WW2 for insight.
- bubbleRefuge 4y ago100% . Exactly and if "money" lands in the accounts of agents (people, businesses) who do not spend it, its not inflationary. If I have 10 trillion dollars in my account, but I do not use it. Its not inflationary. This is called a demand leakage. Savings is a demand leakage. Counterintuitive.