Printing Money Can't Replace Real Savings

Between January 1970 and December 2020 on average changes in money supply preceded changes in real economic activity by fourteen months, as depicted by real gross domestic product (GDP). Based on this it is tempting to suggest that a strengthening in the growth rate of money supply will result in the strengthening of real economic growth. Conversely, a weakening in the growth rate of money supply will set in motion a decline in real economic activity.

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The relationship between the growth rate of money supply and the growth rate of real GDP presented in the graph above is a display of historical information. But history as such cannot confirm that increases in the money supply growth rate can set in motion real economic growth. According to Ludwig von Mises, in Human Action,

History cannot teach us any general rule, principle, or law. There is no means to abstract from a historical experience a posteriori any theories or theorems concerning human conduct and policies. 

Also, in The Ultimate Foundation of Economic Science, Mises argued,

What we can "observe" is always only complex phenomena. What economic history, observation, or experience can tell us is facts like these: Over a definite period of the past the miner John in the coal mines of the X company in the village of Y earned p dollars for a working day of n hours. There is no way that would lead from the assemblage of such and similar data to any theory concerning the factors determining the height of wage rates. 

In order to maintain their lives and well-being, people require final goods and services and not money as such, which is just the medium of exchange. Money only helps to facilitate trade among individuals— it does not generate any real stuff. According to Rothbard in Man, Economy, and State, 

Money, per se, cannot be consumed and cannot be used directly as a producers' good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing.

Paraphrasing Jean-Baptiste Say, Mises wrote,

Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.1

Again, being the medium of exchange, money enables the goods and services of one individual to be exchanged for the goods and services of another individual. This means that with the help of money we can exchange something for something else.

When money is generated out of “thin air,” it means that nothing was produced to secure the newly generated money. This means that nothing was exchanged for the newly generated money. Once this money is employed in exchange for goods and services, it sets in motion an exchange of nothing for something. Individuals who are in the possession of the newly generated money can now divert to themselves goods and services without any contribution to the production of these goods and services. What we have here is the so-called money counterfeit effect. A counterfeiter by generating bogus money, which masquerades as money proper, can divert real wealth to himself without any contribution to the pool of real wealth.

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