Why we can’t just “print more money”
I want to settle a discussion that I have been seeing everywhere across social media and social circles alike. This question, as indicated in the title, asks why we can’t just print more money and give it to people in need. In this article, I seek to answer this question, rebut common responses to this question, and in the process explain what money truly represents.
I do not intend to delve into complex economic topics — this would just confuse the situation. There are always deeper layers, but for the sake of this article I will be maintaining a mostly high-level explanation.
What really is money?
It is first important to understand what money is, in order to appreciate why printing more of it would not solve any problems related to poverty. Put simply, money represents that value of goods we have. The cost of any good is determined by market forces, but in a general sense it represents the value of that good relative to our current supply of money.
For example, a pack of gum for $2 is 1/10000 the value of a $20000 car. Now, let’s consider what happens of the supply of money changes: the prices will change proportionately to the change in supply (prices will increase or decrease with the supply of money), but the 1:10000 value ratio of gum to a car remains constant.
In summary: the value of a good is constant (independent of the supply of money), and the cost that is associated with it is a reflection of the current supply of money.
There are deeper layers that address how and why this system came into place; this topic is interesting, but for the sake of this article, these details detract from the discussion at hand.
Addressing a common response to this question
First, I think it is important to unlearn the incorrect answer to this question, in order to then properly learn that proper answer. On social media, many responses to people asking why we can’t just print more money have gone viral, and unfortunately tend to be condescending in nature. One that stood out to me was: “Monkey has 2 bananas, then monkey gets 10 bananas. Now bananas are worth less”.
This argument misses the mark completely. Bananas have value and utility - they are food. Therefore, the increase from 2 to 10 bananas actually multiples the value in that economy by 5. Money is not even involved in this equation. As a result, we can see this example does even not fit into the same discussion of printing more money. In this example, the value of goods changes, whereas in the discussion of printing more money, the value of goods is constant.
What is true about this argument is that the marginal value of each new banana does decrease (meaning the first banana is more valuable than the tenth). This is called diminishing returns, and it unrelated to the discussion of printing more money. Clearly, having 10 bananas is better than 2.
So, why can’t we just print more money?
By now, you may start to be putting the pieces together. I wanted to put the answer after the explanation so that you not only could accept the correct answer, but also understand and embrace it!
Here’s what it comes down to: printing more money will increase the amount of money everyone has, but the value of goods is fixed. If everyone has more money to spend, the price for a good will just go up as a result, and no one is better off. This is because goods are scarce.
Imagine there are 10 apples that are each $1. If suddenly 50% more money was printed, everyone would have 50% more to spend. However, there are still only 10 apples, and people now have 50% more to spend for the same good. As a result, the price will go up 50% to $1.50. No one would actually be able to buy more apples, since the amount of value did not change. This concept of course, is called inflation.
In summary: the purchasing power of an individual does not increase if everyone has more money to spend.
Well, if printing more money can’t help lower-income groups, what will?
The solution to addressing poverty is three-fold: increase the value of goods for everyone to access, distribute the value that’s been created, and decrease inefficiencies along the way. Printing more money isn’t a solution.
In order to progress as a society, we can’t maintain a fixed level of value. Back to the monkey analogy, 10 bananas is better than 2. By investing in new technologies and innovations, we can derive more value for everyone to benefit from.
For example, in 1975, British wheat yields were just over 4 tons/hectare, 40 years they doubled to over 8 tons/hectare. Even though land remains scarce, improvements in technologies such as irrigation and crop modifications have allowed for twice the output. Now, we have access to twice as much crops for people to use, or the same amount can be grown in half the space.
Similarly, investments that get people working increases the value of manpower. Human potential is one of the most plentiful resources if addressed accordingly. Investing in opportunities for people to contribute is paramount.
This component of the solution goes hand in hand with the previous. As society derives more value, this value becomes more accessible to all. For example, if wheat yields double, the increase in supply means prices will fall and more people can purchase it. Ideally, these increases in supply will increase to the point that prices are at a level where even the most disadvantaged can afford them. Rice is a good example of this concept.
The argument for how these investments should be funded is two-sided: private investment and government investment. For the sake of this discussion, there is no inherently right or wrong approach - each as their benefits and drawbacks.
While growing the wealth of society is important, making sure we do not waste and lose it is also important. For example, decreasing healthcare expenditures by taking a proactive approach to prevent accidents and illness in the first place will save enormous costs; wearing a helmet when biking is much cheaper than the cost of head surgery after a bad, preventable accident.
This approach extends beyond the individual. For example, by taking action against climate change now, the costs down the road will be cheaper. The longer we wait, the more resources we will have to put into combatting the issues we created in the first place. Of course, everything needs balance, and there are an array of approaches to tackle any problem.
Well, you have arrived at the end. I hope you have not only learned something, but feel better equipped in understanding the principles of money supply and inflation!