Creating More Money Won't Revive The Economy

Consequently, once the market has chosen a particular commodity as money, the given stock of this commodity will always be sufficient to secure the services that money provides. Hence, in a free market, the whole idea of the optimum growth rate of money is absurd.

According to Mises:

As the operation of the market tends to determine the final state of money's purchasing power at a height at which the supply of and the demand for money coincide, there can never be an excess or deficiency of money. Each individual and all individuals together always enjoy fully the advantages which they can derive from indirect exchange and the use of money, no matter whether the total quantity of money is great, or small. . . . the services which money renders can be neither improved nor repaired by changing the supply of money. . . . The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do. [2]

In a market economy, the purpose of production is consumption. People produce and exchange with each other goods and services in order to promote their life and wellbeing - their ultimate purpose.

This in turn means that consumption cannot arise without production while production without consumption will be a meaningless venture. Hence, in a free market economy both consumption and production are in harmony with each other. In a free market economy, consumption is fully backed up by production.

What permits the baker to consume bread and shoes is his production of bread. Thus, a portion of his bread goes to his direct consumption while the other portion is used to pay for shoes.

Note that his consumption is fully backed up i.e. paid by his production. Any attempt then to raise consumption without the corresponding production leads to unbacked consumption, which must come at somebody else's expense.

This is precisely what monetary pumping does. It generates demand, which is not supported by any production. Once exercised, this type of demand undermines the flow of real savings and in turn weakens the formation of real capital and stifles rather than boosts economic growth.

It is real savings and not money that fund and make it possible the production of better tools and machinery. With better tools and machinery it is possible now to lift the production of final goods and services - this is what economic growth is all about.

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