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.

10 Comments

  1. Nick Picini

    Zimbabwe’s inflation is this principle run a muck. If you except the notion that money is a medium of exchange of representation of good + services (wealth) which is generally true, than by printing more money, you are claiming that there are more goods + services than actually exists. Of course if you work for the Federal Reserve, money is paper that you assign value to. It is why quantitative easing creates short bursts of growth followed by a significant down-turn.  

  2. Anonymous

    so why cant everyone have twice as much money but NOT pay twice as much for goods and services. ..? 

  3. Anonymous

    Low or negative inflation is correlated with high unemployment, low wages, and excess capacity. Inflation also reduces debt burdens.

    Money is more important as a medium of exchange than as a store of value; people should have an incentive to spend and invest rather than to hoard their money. Inflation should be relatively stable and low but always positive. Large increases in the money supply often have very little effect on inflation when there is excess capacity or widespread de-leveraging (Japan over the last 10 years comes to mind.)  
  4. Anonymous

    At full capacity, yes printing money will create inflation with possible negative side-effects. But if unemployment is high and there is excess capacity in basically every sector (like right now in most developed countries) printing money can increase output greatly. Quantitative easing creates money for the purchase of private securities, while this was a giant giveaway to the very wealthy it hasn’t created much inflation or growth except in the financial sector.

  5. Anonymous

    Because it costs money to bring those goods and services to you. If money was worth half what it used to be it would be double to get the services and products to you. It’s called inflation! 

  6. Anonymous

    From a nationalist perspective it can work.  From a globalist perspective it will not work.  If all else fails we can sustain quite a bit on our own verses other countries of whom cannot sustain a basic standard without international trade.  We may have some manufacturing issues, but as far as food, energy, water, and most goods we can could seal off the borders and be fine.  That is only in a massive judgement day style situation where that would be done. 

  7. Anonymous

    Dear Christopher.

     From a nationalistic perspective if we seal our borders the whole economy will collapse.Global economy/trade create millions of jobs in this country.Imagine  us cutting trade with Japan,China,Mexico,Germany,France,Brazil,etc..It will be a bad judgment..

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