[mannerheim]

> I would also expect the value of the electronics industry, and its profits, to rise. Where's the additional money to denote that value coming from?

Value does not come from money. Real value comes from the goods and services actually produced. As for whether profits increase, that depends. An increase in productivity in an industry might not necessarily entail an increase in profits for those in that industry. That's the basis for cartels, restriction production in order to boost profits.

> Goods and services that don't follow normal supply-demand logic (education) or have excessive regulation controlling supply (healthcare, real estate) are the exception to this.

This is not necessarily the case, i.e., services can decline in price as well as output increases. If, for example, the money supply were fixed but there were now twice as many workers, there is half the amount of money to go around for each person (but this is not really a problem because money is only useful as far as it is used to purchase goods and services, and in this scenario there are now twice as many goods and services to go around, so it balances out). So if the money supply were completely fixed, you would expect the price of everything to decline over time. However, historically, before the Federal Reserve, prices were relatively stable over periods as long as a hundred years. This is probably because the money supply was not actually fixed - it was backed by gold, and the more the economy grew, the more gold could be mined.

> The government printed more money to pay for the war, but it could alternatively have taken on more debt

Well, this is precisely how the Federal Reserve system works (at least in theory). It doesn't simply hand the government a blank check (although these days it might as well). It lends money to the government to spend. Actually, the process is slightly more convoluted. The government borrows money by selling bonds, and then bondholders sell those bonds to the Fed.

Regardless, the end result is the same, an influx of created money entering the economy. Other forms of lending plays a central part in money creation, through what's called the money multiplier, and the Fed has traditionally targeted inflation by lowering interest rates, making it cheaper to borrow money, encouraging more borrowing, and thereby increasing the money multiplier. So in any event, the cause of inflation is an expansion of the money supply. The money printer by itself is responsible for only M0, but other actions by the government can grow or shrink the larger money supply (M2).

[triceratops]

> Value does not come from money

I didn't say that. I said money measures value. Without money, value is purely subjective.

> Real value comes from the goods and services actually produced

Agreed. And making more money over time is a means of measuring "real value" creation. It's a crude approximation (patent trolls and telemarketers are strictly negative value IMO, and they still make money) but it's the best we have right now.

> An increase in productivity in an industry might not necessarily entail an increase in profits for those in that industry.

True. It can also spark price wars and a race to the bottom, which is great for consumers. However companies are required to make a profit in order to continue to survive. Otherwise they run out of money eventually. This is the current reality of balance sheets and return on capital and quarterly results. Wanting currencies to be deflationary under this reality is like wishing that time runs forward for everyone else while you keep getting younger.

> the money supply was not actually fixed - it was backed by gold

Why does anyone give a shit about gold? Why does it have any value? This whole thing is circular reasoning. "Gold standard currencies are good because they're deflationary. Deflationary currencies are good because they're backed by gold".

> the cause of inflation is an expansion of the money supply

When speaking of inflation, I feel like it's necessary to differentiate between nominal inflation (the number on your grocery receipt goes up) and real inflation (percentage of your income/assets spent at the grocery store goes up). Btw, I'm not an economist so I have no idea if these are real terms. But as a consumer, these are the only things that actually matter to me. I wouldn't care to live in the 19th century, when the price of wheat only increased by 10 cents/bushel decade-over-decade, if I couldn't afford enough food to feed my family.

Moreover, given how different everything in the 19th century was (open immigration, tons free land to settle, tons of newly discovered resources, less competition for everything, less well-developed capital markets, less global trade), I'm skeptical about how useful it is to compare prices of consumer goods back then to now.

Sure the money printer makes all the numbers go up in a scary way. But does it make people poorer in real terms? The answer to that IMO is, "it depends". If the money supply exceeds actual value produced in the economy, it does. If not, it doesn't.

[mannerheim]

Your negative reaction to my comment about the gold standard is misplaced. I only mentioned it to explain the historical characteristics of the money supply, namely the stability of prices during the 19th century. I'm no goldbug and do not particularly care that money has to be backed by anything.

> And making more money over time is a means of measuring "real value" creation.

This is only because that's a characteristic of how the modern money supply works. Money itself does not create value; if tomorrow the money printer turned off and from now until the end of time everyone worked with a fixed quantity of dollars, that would not stop value from being created.

> However companies are required to make a profit in order to continue to survive. Otherwise they run out of money eventually.

They could break even. Anyway, there is economic profit and normal profit. The latter refers to profit on the balance books, while economic profit accounts for the opportunity cost involved. In the pure competition model, the economic profit is driven to zero, yet companies making no economic profit will still survive. If a company can year over year make enough money to pay for its expenses and the expenses of its employees and operators, it will survive. It could make less money one year than the year before, but if its expenses declined as well, it can continue (note that this again doesn't entail less value produced, as more real products could be produced for a lower price). There's nothing fundamental about a deflationary currency that would prevent a company from making enough money to meet its costs.

> I wouldn't care to live in the 19th century, when the price of wheat only increased by 10 cents/bushel decade-over-decade, if I couldn't afford enough food to feed my family.

> Moreover, given how different everything in the 19th century was (open immigration, tons free land to settle, tons of newly discovered resources, less competition for everything, less well-developed capital markets, less global trade), I'm skeptical about how useful it is to compare prices of consumer goods back then to now.

I only spoke of the 19th century only to point out that economic growth is not the cause of inflation, as you had asserted above (with a possible exception in the short run as I mentioned above). It is caused by an expansion of the money supply.

Whether inflation or deflation are good or bad are separate arguments. I think both can lead to problems. Deflation encourages people to hoard money, as a productive investment that isn't productive enough could lose money; without deflation, even if you don't beat the opportunity cost you could have made, at least you're better off than if you had just kept your money as cash. Inflation, on the other hand, encourages risky and speculative investment. It is no coincidence that cryptocurrencies have exploded in price in the cheap money, low interest rate environment we currently have. Anyone who saves money in a bank is essentially losing money. So a good deal of money has been created, and it goes towards chasing any type of asset that is appreciating in value - stocks, land, and cryptocurrency. The S&P 500 has doubled in value in the last five years, but the economy did not even nominally grow by 20%. It is a recipe for a bubble, or worse if the Federal Reserve decides to try and keep that bubble from popping by any means necessary.