[fmsf]

The printed money is effectively diluting everyone's else's money. So technically you could think of it as an indirect tax, because the overall currency value drops.

Similar to a company emitting new shares to pay employees. It's the shareholders who are paying the cost via dilution.

[synnejye]

Disagree. :-)

Printing money does not automatically lead to inflation. Since inflation is just the price of stuff rising, the question becomes, when do prices rise? The price can rise for multiple reasons:

The price can rise because the company just wants to charge more, like Apple. The price can rise because a company's underlying cost rises. Maybe some type of metal became more expensive.

Either way, the only way that money printing can lead to inflation is if that money creates so much demand that a company needs to expand production capacity to produce more, and if that capacity has rising costs.

If a company expands from, let's say 65% capacity to 75% capacity, and has constant costs, then it doesn't matter. Then more people will be employed due to increased demand, and the economy will boom. This makes money printing a good policy.

If, however, the company goes from 85% to 95%, then the company might start to invest in extra capacity, which might add costs, and thereby might raise prices.

So, do prices rise just because a certain amount of dollars were added to an economy ? No, certainly not. Which is why the money printing should only happen when the economy is dysfunctional. Basically Keynes in a nutshell. :-)

[ghastmaster]

> Since inflation is just the price of stuff rising...

Inflation literally is money printing. Price increases is not inflation. Price increases can be caused by inflation. Prices can remain nominally the same while money supply has increased.

> So, do prices rise just because a certain amount of dollars were added to an economy ? No, certainly not. Which is why the money printing should only happen when the economy is dysfunctional.

The prices while having not risen nominally are still artificially inflated. A dysfunctional economy is not a real thing. It is just the economy. If you are referring to a recession, printing money during a recession arguably may not cause prices to rise nominally, but it artificially inflates them. During a recession prices typically go down due to falling demand. This is a good thing. It allows people who are suffering to enjoy lower prices. Recessions are a healing process for a previous period of misallocation of resources. Money printing only serves to exacerbate and extend the misallocation. As the period of misallocation is extended and exacerbated, the recession necessary to balance that is larger and more frightening.

We left the gold standard because we were afraid to deal with the recession from the spending of '60s and we've been afraid to deal with our issues ever since. One day we won't have a choice. Tough times are ahead.

[jrs235]

This is the definition of inflation that I was taught too. However it seems that people now days mean for inflation to be about price increases rather than money supply inflation (increases). The money supply inflates and deflates. Prices increase and decrease.

I think it would be best if we all start being more clear and specific when talking about "inflation".

Printing money DOES automatically lead to inflation. It leads to inflating the money supply or MONEY SUPPLY inflation. However printing money and inflating the money supply does not necessarily lead to price increases or price inflation. Most of us care about price increases, which are a symptom, but not allows present, of money supply inflation/printing money.

[Anon1096]

When talking about inflation, there's no such thing as "money supply inflation". The term inflation IS clear, you're just choosing to try and redefine it to match your purposes. Inflation is a rise in the price of goods, full stop.

[ghastmaster]

When using the word "inflation" without context is is referring to increased money supply. When using the word "inflation" with regard to prices it is in a different context. The assumed context is what has changed due to the fact that money supply no longer is directly correlated with price increases. When gold and silver were directly debased, prices of goods were directly inflated. If we still used gold/silver currency "inflation" by itself would be synonymous with price increases. We use fiat currencies and the money supply is increased in certain industries or assets and therefore "inflation" has to be defined more clearly. Debasing fiat is not as direct as debasing commodity backed dollars or gold/silver currency.

The article author does a decent job of defining these, but fails to be clear as the writing progresses.

[jrs235]

Prices across the board could increase if say the cost to produce and deliver them went up across the board, perhaps because the cost of energy/oil goes up, perhaps due to constrained supply. This isn't inflation and the price increase isn't due to inflation.

Prices across the board could also go up if war breaks out. That's not inflation.

Those types of price increases are due to the supply side. Inflation is due to the demand side and the available dollars chasing the [same amount of] goods.

Price increases and inflation are not the same thing. They are typically related though.

[OGWhales]

> Inflation literally is money printing. Price increases is not inflation.

According to who exactly? I encourage you to research this and determine the validity of your assertion, as I can't even find a single person defining it the same way as you are here..

[colinmhayes]

According to economists who invented the word. Words change meaning, and I'm partial to believing the definition of inflation has changed, but if economists still use the original definition.

[ghastmaster]

My explanation is in this thread to another comment(anon1096). To expand:

> The era between the mid-1830s and the Civil War—a period economists refer to as the “free banking era”—saw a proliferation of banks. Along with these institutions came “bank notes,” a private paper currency redeemable for a specific amount of metal. That is, if the issuing bank had it. At times, banks did not have enough gold or silver to satisfy all of their claims. Bank notes, like the public notes that preceded them, also tended to depreciate. It is during this period that the word inflation begins to emerge in the literature, not in reference to something that happens to prices, but as something that happens to a paper currency.

> The term inflation was initially used to describe a change in the proportion of currency in circulation relative to the amount of precious metal that constituted a nation’s money. By the late nineteenth century, however, the distinction between “currency” and “money” was becoming blurred.

> In addition to separating the price level from the money stock, the Keynesian revolution in economics appears to have separated the word inflation from a condition of money and redefined it as a description of prices.

> When Keynesian economic theory challenged the direct link between money and the price level, inflation lost its association with money and came to be chiefly understood as a condition of prices.

https://www.clevelandfed.org/newsroom-and-events/publication...

Keynesian economists changed the word to suite the needs of Keynesian theories. It is equivalent to "newspeak". It obfuscates and confuses. There is a large portion of the population that does not believe in the implementation of or understand Keynesian economics(and definitions). They may not be very good at explaining or understanding their discontent due to these semantics changes.

Then again, maybe you are right. As Milton Friedman famously stated, "We are all Keynesians now."

[RobertoG]

>>"> The term inflation was initially used to describe a change in the proportion of currency in circulation relative to the amount of precious metal that constituted a nation’s money."

That definition of inflation makes no sense in the current monetary arrangements, it's, simply, not how it works anymore. There is not an "amount of precious metal that constituted a nation’s money." If some people don't understand that, we should aim to educate them.

>>"Keynesian economists changed the word to suite the needs of Keynesian theories."

Whatever the historical meaning of a word, inflation means something very clear now

From https://en.wikipedia.org/wiki/Inflation:

"In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time, resulting in a sustained drop in the purchasing power of money."

You can't just revert the meaning because it suite your needs, and expect everybody agree. Whatever your feelings about it, that it what it means now.

[ghastmaster]

> That definition of inflation makes no sense in the current monetary arrangements, it's, simply, not how it works anymore. There is not an "amount of precious metal that constituted a nation’s money." If some people don't understand that, we should aim to educate them.

To be clear, what you are referring to is a quote from the FED article I linked to and quoted. Before the Keynesian revolution, inflation meant increased money supply and was assumed to increase prices as well, because money was backed by or was gold/silver. Many people as you opined have a misunderstanding that money is still backed by gold and you are correct that they lack the education. The "change" in the definition was by the Keynesians. It is not accepted by everyone. The monetary theory change should not change the definition.

Why does my definition make sense to me? A price is a number, not a physical thing so it increases. Take the balloon analogy. Money supply is the balloon, inflated with dollars. Price is the balloon, inflated with numbers? Does not make sense to me. The term "price inflation" is a misnomer. It should be "price increase".

FYI: On this site we use "> " for block quotes. You used quotes and ">>" and included my ">". It was a little confusing.

[synnejye]

> Inflation literally is money printing. Price increases is not inflation. Price increases can be caused by inflation. Prices can remain nominally the same while money supply has increased.

Well, in today's world it is. Yes, not according to your 'old-school' definition of it. But if anyone says "inflation" today - it means price increases. Nothing more, nothing less.

> The prices while having not risen nominally are still artificially inflated. Care to explain?

> It is just the economy. If you are referring to a recession, printing money during a recession arguably may not cause prices to rise nominally, but it artificially inflates them.

Yes, I meant a recession. Please, once again, elaborate what you mean by "artificially inflated prices"?

> During a recession prices typically go down due to falling demand. This is a good thing. It allows people who are suffering to enjoy lower prices.

Ehh, ok. So what happens to those people when companies start making less money?

> Recessions are a healing process for a previous period of misallocation of resources.

Care to explain how resources are "misallocated"?

> Money printing only serves to exacerbate and extend the misallocation.

Lol, no it doesn't. Sounds like a neoclassical fairytale. In a recession, you are arguing that one shouldn't print money, because it only "extends misallocation". Please explain me a proper allocation and a misallocation. Makes no sense. Newly printed money would add demand - as it should. It would create jobs and have nothing to do with "misallocation", That "misallocation" sounds like a conservative argument. No one can explain or prove it, or even make sense of it, but if you keep repeating it, then people will believe it.

> We left the gold standard because we were afraid to deal with the recession from the spending of '60s No, America left it because it was a shit system. Capitalism is inherently monetary. Having a currency pegged hinders growth and only serves to avoid inflation for the rich. Rentier capitalism doesn't like inflation.

[ghastmaster]

> Well, in today's world it is. Yes, not according to your 'old-school' definition of it. But if anyone says "inflation" today - it means price increases. Nothing more, nothing less.

Apparently you are correct. The vast majority of people hear the term and think of price increases. As I noted earlier, the definition has changed. I gather most of my economic understanding from Austrian School economists which when referring to inflation usually mean increase in the money supply.

> Care to explain?

> Yes, I meant a recession. Please, once again, elaborate what you mean by "artificially inflated prices"?

When a recession happens there is a decrease in demand for products and services. This drop in demand causes an increase in supply of those same products and services. The increase in supply causes prices to fall. When the government releases more cash into the market, the supply of cash is increased. When people have a larger supply of cash, they can pay more for goods and services. If the cash infusion is at a certain level, prices may not increase nominally(compared to before a recession) because the increased supply of money prevented their drop. The term artificial refers the fact that the money supply is increased or decreased by government fiat. Hence, the prices are increased or decreased by government fiat. Government involvement in the market is artificial. Markets exist without government and with governments. When a business or person is making decisions based on market dynamics and a government steps in to alter the dynamics, that is artificial, because it is produced by a political agency. It is not a natural quality of the market.

> Ehh, ok. So what happens to those people when companies start making less money?

When these people and companies make less money, that is offset by the decreased price of goods and services. Companies pay less for material because demand has gone down, this allows them to continue to employ people and be competitive and profitable. There will be temporary imbalances of course, which will result in job losses and business closures.

> Care to explain how resources are "misallocated"?

> Money printing only serves to exacerbate and extend the misallocation.

Misallocation refers to capital that was directed to unprofitable sectors of industry at a macro and micro scale. Assume for a minute that government is not involved in the market at all. When businesses compete, they make different decisions on how many people to hire, equipment purchases, material acquisition, debt level, and many other things. They have decided where to "allocate" these resources(labor, capital). When one company makes a bad decision this can lead to less profit and eventually the failure of the business. If enough businesses make these bad decisions, a large portion of the resources have been "allocated" to sectors or markets that are unprofitable. They may survive for a time before one starts failing, then another, and another. This is what causes a recession in a market that is not influenced by government. As the recession progresses to the end, there are less businesses competing that have "misallocated" their resources.

When governments print money and allow business unfettered access to this money via low interest rates, companies take advantage of it. Because they have more money than their competitor they can pay more money for materials, labor, equipment. They can lower prices of their goods or services to temporarily out compete their competitors. When other businesses see what is going on, they secure more of the cheap debt as well. For a time, the businesses that make poor decisions(paying too much for labor/materials/equipment) can still compete because they have not ran out of cash. When the loan balance becomes too high, we reach a scenario where businesses start cutting back to pay the interest and principle. They start increasing product prices, cut labor, sell equipment. Due to the fact that the government has increased the amount of money available to these companies beyond what they normally would have, the government increased the amount of "misalloctated" resources. Coupled with companies en masse gathering debt to stay competetive, this results in a larger recession, because a larger percent of the market is based on capital that was acquired through fiat rather than competition. Companies and individuals enter this new recession with larger balances and larger portions of their cash balance is subject to interest payments. This means the selloff of equipment must be larger, labor cuts must be larger, and material acquisition costs must be reduced to a greater extent. This results in a greater recession or depression. The money printing exacerbated and extended the misallocation.

> No, America left it because it was a shit system. Capitalism is inherently monetary. Having a currency pegged hinders growth and only serves to avoid inflation for the rich.

Please explain. How does pegged(commodity) dollar hinder growth, given the history of the US dollar peg and substantial economic growth? Avoids inflation for the rich?

[synnejye]

> When the government releases more cash into the market, the supply of cash is increased. When people have a larger supply of cash, they can pay more for goods and services. If the cash infusion is at a certain level, prices may not increase nominally(compared to before a recession) because the increased supply of money prevented their drop.

So how is that a bad thing? You keep demand high and you keep companies from LOSING money, ie., they keep people employed.

> Markets exist without government and with governments.

Maybe, maybe not. But it sure is a shitty market without a government. If governments don't set up regulations, rules, and intervene, you're pretty fucked. I could easily be a big scammer then.

> When a business or person is making decisions based on market dynamics and a government steps in to alter the dynamics, that is artificial, because it is produced by a political agency. It is not a natural quality of the market.

Okay. So you are saying markets should rule and the people should not have a say in what is going on the country? Why is it bad other than you don't seem to like government?

> Companies pay less for material because demand has gone down, this allows them to continue to employ people and be competitive and profitable.

But you need to think in cycles. As you state yourself:

> There will be temporary imbalances of course, which will result in job losses and business closures.

This will lead to a recession if the government doesn't intervene. As observed, in reality, capitalism works in cycles. Up and down. What happened when we had the sort of capitalism that you want? A depression. The depression wasn't solved before government stepped in during WWII to increase demand. Magically waiting for demand to pick up aint gonna happen.

> Misallocation refers to capital that was directed to unprofitable sectors of industry at a macro and micro scale. There is no such thing as misallocation. In real life, people set up businesses because they believe they can start a company that is profitable. Some people set up businesses where they think they can create a demand for their product or service, others set up knowing that demand is pretty much there. If you cant sell your product or demand isn't there, the company goes bankrupt. It didn't work. A new company will start somewhere else, where the workers are needed. So are the ways of capitalism.

> When governments print money and allow business unfettered access to this money via low interest rates, companies take advantage of it...

Let me stop you there. I am not talking about money printing in the form of debt. I am talking about debt-free money printing which the government has the capability to do.

> Please explain. How does pegged(commodity) dollar hinder growth, given the history of the US dollar peg and substantial economic growth? Avoids inflation for the rich?

"So, on every score, the gold standard period was less stable. Prices were less stable; growth was less stable; and the financial system was less stable."

and more importantly:

"(...) The loss of gold forced the deficit country’s central bank to shrink its balance sheet, reducing the quantity of money and credit in the economy, and driving domestic prices down. Put differently, under a gold standard, countries running external deficits face deflationary pressure. A surplus country’s central bank faced no such pressure, as it could choose whether to convert higher gold stocks into money or not. Put another way, a central bank can have too little gold, but it can never have too much."

"This brings us back to where we started. Under a gold standard, inflation, growth and the financial system are all less stable. There are more recessions, larger swings in consumer prices and more banking crises. When things go wrong in one part of the world, the distress will be transmitted more quickly and completely to others. In short, re-creating a gold standard would be a colossal mistake."

https://www.moneyandbanking.com/commentary/2016/12/14/why-a-...

Since the currency is pegged, it will constrict the supply of money. When production increases, but the money supply is constant, it will create deflationary pressure. Deflationary pressure = prices fall. Prices falling = recession. So whenever the economy was growing, the gold standard made sure to halt that growth by letting prices fall and introducing fiscal austerity.

So why does this system fit the rentier class? Well. If you have a high inflation, then assets will deliver smaller returns over time. And the rich don't live on wages, but assets like stocks, land, property, bonds etc. If you are only getting 3% on a loan/bond, and the inflation is 3%, then in the end, you get 0.

[OGWhales]

Not quite accurate, as it depends, this explains some of the other relevant variables in the equation: https://www.forbes.com/sites/johntharvey/2011/05/14/money-gr...

[colinmhayes]

John Harvey is heterodox. Essentially the equivalent of climate change denial for economists.

[OGWhales]

So you are disagreeing with what he asserts in the article? Please elaborate.

> Essentially the equivalent of climate change denial for economists

I don't know him, but that sounds like a stretch...

[colinmhayes]

99% of economists disagree with him, that's what makes him heterodox. I'm not going to waste my time, but it's easy to find a dunk if you just google him.