[gbacon]

Nation-states still maintain gold reserves and transact in bars of the barbarous relic stored in the basement[0] of the New York Fed. An unwashed layperson might see this and suspect that they know better than to trust each other’s digits in computers and pieces of paper.

Physics-envyists engage in scientism, having the superficial appearance of science by way of high-minded terms liquidity, velocity, circular flow, price level, and quantity needing to grow with the economy, but it is utterly hollow. If supply is not rooted in genuine demand, pouring on more and more money (“reflating”) will not fix the root problem.

Consider that if currency inflation (printing more money) produced an instant uniform increase in all prices, then the effects on purchasing power and prices would cancel each other out — leading to no net effect. The market does adjust to changes in the supply of money as you noted, but these changes take time and cause prices in some sectors to rise more than others. Here again the easily swayed layperson might make these observations and wonder why bother about it.

[0]: https://www.newyorkfed.org/aboutthefed/goldvault.html