Can government print more money without causing inflation?

Not quite.

Printing money causes inflationary pressure. Every single time.
That inflationary pressure may be countered by the deflationary pressure of increased supply in the goods and services money is traded for.
But it still causes the inflation even if other things then counter it.

Hyperinflation is not solely caused by a shortage in tradeable resources.
Money printing is also part of the equation.

Neither of the two stand in isolation of each other.
In the classic examples, all hyperinflation happened in combination with mass money printing.
While a great many droughts and famines have not caused hyperinflation.

A shortage of tradeable resources alone has never resulted in hyperinflation.
If we take examples like Ziombabwe, the printing of money devalued the currency internationally and this action in and of itself created a shortage in supply.
People couldn't buy foreign produce with their valueless $.
(Which is a normative response to drought or some other localised shortage for example).

The printing of money exascerbated an existing problem. Made it worse.

 

Assets that may or may not turn out to have the claimed value. Right.

Right. And as it can always borrow to cover reserve shortfalls, it does not need any depositor savings to "lend out" to borrowers.

"The process by which banks create money is so simple, the mind is repelled." -- John Kenneth Galbraith

That would certainly describe the typical explanation of commercial bank operations, let alone central bank operations.

Yep. And the purpose of a con is to get something for nothing. Like the interest a bank charges borrowers merely for exercising its privilege of money creation.

But private commercial banks do create money de novo by lending, and governments and central banks can issue money more or less at will with a few keystrokes on a computer.

So true...

 

According to mainstream neoliberal orthodoxy.

Which gives us the current anarchy, anarchy which will explode from time to time, unless the underlying resentment and demoralisation associated with entrenched economic disadvantage is addressed.

"An economy that works for all".

Heterodoxy described in MMT describes how this can be achieved.

It's not a matter of "can we pay for it", but do we have the resources.

But insistence on "personal responsibility" ALONE as a solution is doomed to failure.

And the topic of the OP is a red herring in a neoliberal dystopia.

 

Too many big words.

Complication is the art of the con.

 

Banks do not do that.

It is not done. That simply does not describe banks' ledger entries.

That would be financial intermediation, which banks purport to be doing -- but actually are not doing.

Right. It creates money de novo, but not ex nihilo. A private bank is absolutely unable to create a debt money liability unless someone is willing to create the balancing loan asset for them.

 

What are you talking about? How do you think banks pay interest on depositors accounts?

I'll give you the benefit of the doubt and assume you somehow misunderstood my statement.

Okay then, where does the money to lend to borrowers come from?

 

Bank operations.

Out of their fee, interest, and/or investment income.

I didn't. Your statement was false.

The bank creates it. The bank simply writes a higher number in the borrower's demand deposit account, which is a new liability of the bank that balances its new loan asset. The loan proceeds are added to the money supply, and then removed from the money supply over time as the loan principal is repaid.

 

It's frustrating to argue with you. Doesn't their investment income come from the ones borrowing money from them?

Please don't make me connect the dots for you. It seems like we might be arguing around in circles.

That's what I meant and was trying to say.


Taking a look back at what I stated:

I think we have to identify the differences between your statement and my statement, and realize both are happening.

Edit: After giving this some more thought, I think I was wrong here.

I had to go back to our original disagreement starting here

Sorry, this is all kind of complicated.

Wow, I think I made a really stupid error there because I was not thinking clearly. I guess I must have been very tired when I posted that.​

 

No, that's interest income. Investment income is dividends from stocks, rent from real estate, etc. as well as capital gains on derivatives, arbitrage trading, etc.

No, banks do not lend "from depositors' accounts." The money depositors put in the bank is used as reserves, not "lent out." Loan proceeds are created as a new demand deposit liability that balances the new loan asset.​

 

How about this for simplicity:

Sovereign currency-issuing governments issues money, without taxing or borrowing from the private sector, to fund public sector programs: and government uses taxation after this currency issuance, solely to regulate the total combined public and private sector demand on resources (ie to control inflation).

Thus allowing much greater freedom of policy choice by democratically elected governments, rather than being restricted by the constant refrain "how are we going to pay for it".

Meanwhile , you will benefit from reading the debate between bringiton and kazenatsu above. There is no way around the complexities of reserve banking that includes commercial (private) banks.

And indeed banksters take advantage of this complexity to further their own interests at the expense of the real economy.

 

Thanks for your advice. I have discussed this with Kaz and Bringiton in other threads over the years. Amongst a great many others.


Issuing money devalues all existing money.
When a government issues money it is not cost free to the private sector.
The cost is simply masked. Less easy to spot.

It is a redistribution of wealth from those in credit to those that newly issued money is given to.
(Typically it is used to buy government debt. So the redistribtion comes from savers/creditors and goes to tax payee's).

This has an inflationary effect.
My labours now earn me less resources. My paycheck now buys less.
My savings now buy less.

As you say the money is taken without tax or borrowing and so most people simply don't spot the confiscation of wealth.
It is a stealth tax.

This can be further masked by matching your money printing to the natural deflationary forces in the economy, such as increasing population or increasing efficiency.
So a government can print money to keep a target inflation rate. And in doing so deny people the benefits and profits of their increased labours or efficiencies.
The inflation rate stays stable and hence the money printing appears to the casual observer to have had no inflationary effect. But it has.
Poeple have lost out.


There is no free money.
There is no magic money tree by which the government can pay for things at no cost to anyone.

Take money out of the equation and think in terms of the resources money is used to trade for.
Labour and goods.
These are finite physical things and are beholden to the laws of physics.
They cannot be created by manipulating your monetary accounts.

Once you understand this simple fact, the underpants are off your head.
There is no magic money tree.
If you print more money you do not create more goods or labour to exchange it for.
You do not add anything to the economy. Only redistribute differently what is already there.

 

Which in normal economic circumstances is necessary to prevent deflation.

Nor is it cost free to everyone else when private commercial banks issue money. The difference is that when a government issues money, it is (at least putatively) devoted to public purposes and benefit, according to prevailing standards of democratic accountability. By contrast, when a private commercial bank creates money in order to charge interest on it, that interest income is used strictly for the bank's own private interests.

No, it depends how the money is issued. If it is paid to government employees, contractors, etc., it does not transfer any wealth to them. It simply pays them what they have earned without taking money from taxpayers. It is therefore taxpayers who are getting relief from liabilities they would otherwise have who get the benefit, not the recipients of the money. OTOH, if the money is given to the rich through purchases of stocks, loan guarantees and subsidies for large corporations, etc., as specified in the CARES Act, then the recipients are getting wealth redistributed to them from society at large.

But the typical creditor is a private commercial bank, which has issued money de novo as loan proceeds in order to charge interest on it. So the redistribution thus effected is from the borrower (and savers who would otherwise be able to charge higher interest rates) to the bank.

Depending on how you define inflation.

Less than what? Less than they would if the money supply was fixed? Sure, but a fixed money supply is deflationary, which harms the economy. Better for savers to get less than they would with a static money supply than for the economy as a whole to produce less goods and services.

So is deflation, except that the recipients of the "confiscated" wealth are private savers and creditors rather than the government and the community it serves.

So, what, in your opinion, is the right goal for monetary policy? The relentless natural deflation and consequent stunted economic growth that would accompany a fixed money supply? Most people seem to favor price stability, while history shows that economic growth tends to be greatest when CPI inflation is in the low single-digit percents.

No, inflation does not deny anyone the benefit of their labors or efficiencies, only the benefit of foregoing spending.

Compared to what? In 1939, the US money supply was nearly static. In 1940 it increased rapidly. Which year was better?

The question is: what public purpose do we want money to serve?

That depends on how you define "cost." If government creates $1G and uses it to hire unemployed workers who would otherwise be idle to produce $1G worth of desirable public goods and services that would not otherwise have been produced, at exactly whose cost has the government paid for those things?

That is a neoclassical fallacy. Money makes economic relationships entirely different from a barter economy.

Yes, of course they can. Labor is human effort that is called into existence by payment of wages: it is made to exist rather than not exist -- to be exerted and thus produce goods and services rather than not -- by means of that payment. Your "theory" of money pretends that there are no people involved, no human motives, no reason to produce or consume.

See above. The underpants are still on your head, sorry.

Strawman fallacy. No one has claimed there is any magic or tree involved. We need money. How should it be created? What goals should the monetary system be designed to achieve? If you think the goal is to transfer wealth to savers and creditors at the expense of everyone else by maintaining a fixed money supply, fine. But try to understand that most people think the purpose of money is to serve as the medium of exchange, to make consensual exchange faster, easier and more convenient, not to encourage hoarding and impede exchange through deflation.

You do if you use it to pay for said goods and labor.

The notion that the sum of goods and services is fixed is one of the more naive and absurd of economic superstitions.

 

I'm not quite sure where to begin. There are two points to address.
I do overall generally agree with you, but there are still two points to cover.

First, "money" that is created in bank accounts is not exactly "printing money". So we need to be more precise if we are discussing that or not.

Second, printing money does not necessarily have to result in inflation (although it usually and often does), or at least inflation is not necessarily directly proportional to how much the money supply is expanded.

I will bring up the example again of when the US was on the gold standard, when dollars were actually backed by gold. Assuming there was actually enough gold to cover every dollar in existence, in that case the number of dollars issued could be increased without it causing inflation.

In the current system, the Federal Reserve system, the dollar is still indirectly backed by things (namely Reserve Assets), but it is much more of an indirect sort of backing, and this still results in inflation. (too complicated to get into here, I've discussed it numerous times in past threads)

I suppose I actually should discuss it, since it is relevant to the topic name of this thread, but it is not relevant to what the opening post was actually about.

Anyway, it's a bit frustrating that all of this is so complicated that it's hard for any simple statement to be made without requiring numerous caveats, and a lengthy explanation of what exactly it means and exceptions. I suspect that maybe all of this here is not what you, Baff, were trying to talk about.
That is, within the context of a discussion on MMT, I agree with you that printing money will always result in inflation, even though that may not be exactly true in the strictest sense.

 

There is no money created in bank accounts.
Bank accounts are a ledger. Nothing more.

Money is money. Not assets. Not liabilities. Not anything else at all. Money.
Calling stuff that isn't money, money, isn't going to help anyone understand monetary inflation.

Money is the intermediatory trade good between the trade in assets, liabilites, services etc. Not the things it is exchanged for, despite that you can place a monetary value on these things, they are not money. That value refers to how much money you could expect to trade them for.


2.
The gold standard.
It depends how you measure inflation.

If you add more $ because you have more gold, then compared to the gold you have in your federal reserve, there has been no inflation.
However compared to an RPI, a standard basket of goods for which money is commonly traded, there is inflation.


What backs money is typically only this, what it can be traded for.
I don't take money to the Fed for redemption.
I take it to a shop, a bar or a restaurent.

It is backed by the things i am able to trade it for.
Money is a trade good. It has no static value. it's value is inherently subjective to the people involved in any trade.

 

That's just baldly false. Every private commercial bank loan creates money in the borrower's account. That money is a liability of the bank that is generally accepted in exchange, and is therefore by definition money.

And those ledgers record the creation of money de novo as a liability of the bank that balances the new loan asset.

Money is by definition what is generally accepted in exchange. Bank demand deposit account liabilities are by that definition money. You can spend them almost anywhere.

The contents of a commercial bank demand deposit account are generally accepted in exchange, and are therefore by definition money.

The basket is just a statistical measurement tool; it is not itself what it purports to measure.

No, it is the medium of trade.

That's utility, not value. Value is what a thing would trade for, and is therefore always determined in the context of a market.

 

continued from another thread...

What makes you think supply could increase in response to an increase in the money supply?

What makes you think a country's economy could better utilize its capital resources if the money supply were increased?

I'm sorry to tell you that I'm not sure if I understand what exactly you mean. (Because you seem to be referring to past explanations here)

Just going by face value, from what I read in your single post, I can say this:
Even if you did, hypothetically, prove that money was not the primary factor in inflation, that would still not prove that more money could increase efficiency. Just so you realize that.