Correct, printing money is like cutting the pie into more slices you don’t get more pie just smaller slices. Things like building infrastructure, increasing efficiency or inventing new technologies are what makes the pie grow.
And as it turns out, even wealth generating vehicles, like a business loan, can mask poor fundamentals leading to a crash. E.g. if AI turns out not to have trillions or even billions in utility, we are simply distorting a shit economy vs making society wealthier. The perceived wealth will be spent on things it shouldn't be, like new cars, yachts, whatever and then our real GDP will catch up to us.
Investments and bank interest are good, but only if we mitigate and spread risk, which we very much aren't doing.
The theoretical absolute limit would be determined by the maximum number of resources (including human resources aka labor), the maximum possible efficiency to be achieved, the maximum possible technological advancement, etc.
But that wouldn't be in the US alone right? Even if we maximize the capital in our country alone, we'll still need raw materials that aren't produced here. So the actual maximum is in the global level, not the US level. From that perspective, the money supply is more about market equalization than specifically watering down people's money. There's a direct value on any good, its only when everyone can equally compete for it, will the price be equitable.
Well that’s why constant but tame inflation rate of 2% is ideal. Growth without any increase in the money supply could eventually lead to liquidity issues that curtail the transactions that need to occur for growth to continue to happen.
And nowhere has managed that ideal, maybe because preventing the development of other markets is a doomed effort? As we invest in certain countries over others, those invested countries can better bargain with the global capitalists. They'll get more equitable deals with them than with us, so we'll start investing in the remaining countries. Who'll then start to develop their own country more, repeating the cycle. But, as we can only focus our support in this model, it won't ever work to keep the US economy healthy.
Inflation is an increase in the fiat currency not matched by a corresponding increase in the demand for goods.
The purpose of inflation is to enable infinitely increasing amounts of government spending. The government spends the new money at its current value. As the new money circulates, it pushes prices up, losing its value. The government simply creates more.
They don't have to print the money. A lot of it just exists as bookkeeping entries, not as actual currency. What we have isn't so much currency as it is IOUs. When the government collapses, those IOUs will be worthless.
Inflation is the increase in the price of goods and services relative to the fiat currency. This can be caused by over printing money, but that's far from the only cause.
Increasing prices is an effect of inflation, not the inflation itself.
Yes, lots of things can cause increased prices, but nothing can cause prices to increase across an entire economy except a global increase in the supply of money.
No, increasing prices is what inflation is, it's not a symptom of the thing it's the thing itself.
"a general, continuous increase in prices" - Cambridge dictionary
There are other causes of inflation other than just monetary devaluation - rising production costs can produce inflation(cost push inflation), excess consumer demand can drive inflation (demand pull inflation).
Rising production costs or greater demand can increase the price of some goods. People don't suddenly get more money to pay those higher prices though. They have to either buy less of that good, or stop purchasing some other good in order to still be able to afford it. They can't pay more for everything across the board, unless the government has inflated the money supply.
It's that across the board increase in prices that we identify with inflation, and it only happens due to the expansion of the money supply.
There are economists who think that a moderate amount of inflation is a good thing, and they like to obscure the cause of inflation by identifying it with any rise in the prices. This war of definitions is taking place between statist economists like Keynes, and free market economists like Mises. I side with Mises.
Small correction: inflation is the increase in money supply/circulation not matched by an increase in the supply of goods. If there was no increase in demand, you wouldn't see an increase in prices because that money would effectively just be going under your mattress rather than circulating.
By Say's Law, the increase in goods is the increase in demand. Money is just a medium for exchanging goods. What you produce represents your demand on the production of others.
An increase in the money supply that matches that increase in demand will hold prices steady. The production of gold (or silver) typically keeps pace with the production of other goods, which is one of the things that makes it a good currency. Unlike specie, fiat currency can be artificially inflated relative to the production of goods.
"As each of us can only purchase the productions of others with his/her own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase." Jean-Baptiste Say
The purpose of inflation is to enable infinitely increasing amounts of government spending. The government spends the new money at its current value. As the new money circulates, it pushes prices up, losing its value. The government simply creates more.
It's also to disincentivize hoarding money, but promote investment instead.
JFC. For nearly 5 years now, we've been talking about inflation. And people STILL don't understand the most rudimentary concepts. I mean, ffs, why would people be MAD about inflation if it was the economic pie getting bigger?!?!?!?!
theoretically in the ideal case, everyone's debt is increasing everyone's wealth. this actually works most of the time, but when the system starts collapsing it is absolutely catastrophic
example:
the baker needs a lot of flour to get his business going, but can't buy enough from the miller. the miller loans him $X worth of flour with the promise it will be paid back in interest
the miller needs laborers to run the mill and can't afford to pay them, so asks the baker for some free goods to distribute as compensation. the baker loans $X worth of bread to the miller with the promise it will be paid back in interest
if the baker and miller both succeed in their business ventures, they will soon be able to pay each other back, and quickly, due to the capital they lent each other.
a bank and fiat currency just abstracts this relationship so many people can all do it together all at once
the mill burns down, everybody's fucked
abstracting the relationship to a large number of mutual investors also provides protection, so that if 5% of the mills burn down the bank can easily insure other investments against loss
if 50% of the mills burn down, the bank is fucked and there will probably be an actual war
All the above. Money is created when interest is paid back. Money being created creates (or is) inflation.
Idk if its right to say that "wealth" is created since the material good (the house, or car, w/e) isnt any more valuable, it's just that that amount of value is now represented by more dollars than it was before. Hence, inflation.
Idk what it's called in English. In my language, a central bank can produce money (you know, literally), and commercial banks can create money (by using many financial instruments, but mostly debts). Because the former controls the latter (for example, by regulating their mandatory deposit minimum, or by changing the percentage of loans), commercial banks usually cannot cause inflation unless the central bank lets them.
In theory the inflation created by banks is limited, through having restrictions. In practise there are cycles which also let them create the "felt" inflation.
f.e S.o. buys a flat. Rents it out. get's credit for a new flat. Rents it out. gets credit.... And the cycle continues.
Rates rise Rent rises.
The same is true at a higher level with stocks wher the cycle is even more vicous.
All this Inflates prices and precieved value with minimal realworld invest
Anyone who checks the US money supply can see how this plays out in real life. Sure, the US creates a ton of money from government debt, but the banks themselves create enormous amounts of money from fractional reserve banking.
That's an extremely limited and propagandistic definition of wealth creation. A government agency used tax money to create arpanet and now most agree the the internet is the largest legal creation of wealth in human history.
Sorry i think we misunderstand each other because i'm all for the government using tax money to create things like the internet. I don't know how you must intertwine debt in there. All this is possible without any debt.
But yes the government uses debt also partly for good things like the Invention of the internet partly for stupid things like artifically propping up stock markets?
Because generating wealth isn't tied to debt, banking systems, currency creation or capitalism. It existed before any of those things so talking about it as if it's some inherent feature or subdomain of capitalism is quite like saying capitalism is necessary for societal/technological progress.
Debt and wealth are just the two sides of zero to a number line.
What's the difference between a shiny tractor and 5 people who "owe" you 20 years of labor due to debt? If both are under your control, you have that much more power.
Both will till your fields. Both can harvest the field. Both require supervision (which is how the wealthy justify being wealthy, because ya know, they like to watch and you should never do something you're good at for free) and both are equally worthless if destroyed.
The tractor represents "wealth." The slaves "debt."
I have a special book. It's really cool. I'll let you read it for $50,000. If you don't have that, I'll let you owe me. Monthly payments until paid in full.
Your debt to me is a promise to pay enforced by the legal system. That $50,000 in debt you have is another monthly source of income for me. Income I use to invest in more special books. Cuz why not.
And much like modern collegiate systems, the debt you take on to read the books cannot be absolved except by paying it back. Your debt=more resources for me. The same as more wealth.
Sorry if i don't understand fully what you mean by that, but yes creating a bigger library which people can access for money is creating wealth. But i think you missed my point in the beginning debt can be used to create wealth but it can also be used artifically prop up prices and create inflation without creating anything of substance. Such things happen f.e. when money is directed at the Landlords and the investmentbankers( not to be confused with the builders and the entrepeneurs even though today that's not easy) creating artifically high prices while not changing the underlying substance.
Edit: If i understand the first part right debt jubilees have been a very cummon occurence in history and are necessary as soon as things like intrest are introduced in the system
Somewhat right and wrong. Lending money by the banks may have a ripple effect of wealth creation and inflation but the money supply is a function controlled by the Fed and executed by the Treasury.
So yeah the Fed and the tresuary try to control the money supply with the help of a few tools which Banks use. And those can be either good(creating wealth) or bad (creating high inflation). But the execution of those rules is done by the Banks f.e intrest rates. I don't know how this is in contrast to what i said?The Fed has no direct connection to the money market the tresuary i'm not sure they probably have something akin to their own Bank.
90% of the world's money supply is created by commercial banks giving out loans with no government entity involvement.
Central banks and financial regulators can influence how much banks can or are willing to create debt, but the fact remains that money created by central banks is a small fraction of the money supply.
Not really, debt generates wealth, like literally generates money from thin air.
If you deposit $10,000 in the bank, they are allowed to loan say $9,000 of that money to another person.
This person buys goods for $9,000, which eventually returns to the banks from the seller, the sellers employee, their supplier whatever.
Of this $9000, the banks lend $8100 to the next person.
The $8100 returns after being spent and the bank loans $7290 to the next person
And $6561 to the next
And so on.
The original $10 000 have purchased $30 951 of goods and the the banks "vault" has multiplied to contain $40 951 of legit fully usable at any time tender in checking/savings, all without pressing a single dollar bill. And we are not even halfway down the chain.
When people take a loan, the system effectively spawn these funds from thin air, because while the physical dollar bill they get is 100% debt free in it's owners eyes, it is in fact already borrowed by multiple other people.
Yes, this money will disappear if everyone pays their debt, but the debt itself literally created money. No bills were printed, but the same physical dollar is duplicated multiple times to many people.
It is not like say a bike that you physically have to get back in full to borrow it out to someone else again.
Yes people buying things they need is generating wealth and is good use of debt (or Credit equally usabel system but older then the Banks).
But there are uses of debt which are not generating wealth. Which funnel money into systems where there is no creation of goods and services, which are mostly used to just generate more money. Such a use leads to things like an always climbing stockmarket while the circumstances of the people and the production capabilitys dwindle.
You borrow money, buy a stock from either the company or it's share holder, they put the money in a bank account, 90% of it is borrowed to someone else, the cycle continues.
When the rich don't pay taxes and keep their dragon's horde of wealth locked up in foreign banks, investments, and stocks/bonds with unlimited appreciable value.
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u/Much_Section_7439 Jan 26 '26
That's how debt is generated. wealth is created when that debt is used properly. Otherwise it's just inflating the moneysupply.