Why Not Print More Money?

If the government can print money, why doesn’t it just print some and hand it out? Economics professor Antony Davies explains that we can understand why printing money doesn’t work by looking at why money was invented in the first place.

Prior to the invention of money, people relied on bartering to exchange goods and services. Bartering has two problems. The first is what economists call the double incidence of wants problem. To exchange goods and services, you have to find someone who not only has what you want but who also wants what you have. The second problem with bartering is the retention of value problem. When bartering for goods and services, it is difficult to save up what you produce because items produced may not hold their value. Money solves both of these problems.

Money is valuable only because people will give you goods and services in exchange for money. It derives its value from the goods and services. Printing more money will simply spread the value of the existing goods and services around a larger number of dollars. This is inflation. Ultimately, doubling the number of dollars doubles prices. If everyone has twice as much money but everything costs twice as much as before, people aren’t better off. Having the government print money will not increase wealth.