Lost Economic Theories: Printing Inflation-Free Money?

One orthodox and self-evident theory is:

  GDP = Money supply [x] Money velocity

If that velocity were constant (say a dollar gets spent 10 times a year) then the government could control the nominal GDP (counted in current-time inflating dollars) by simply controlling the money supply.

It's not constant, of course. The velocity changes, particularly when the system is under stress.

If the government doubled the money supply instantly, for instance, the real GDP would increase by (say) 5% immediately because people would activate productive capacity that was not there. It wouldn't double, however, because it takes time go to grow.

If velocity were constant prices would (almost) double right away. If the influx of money caused velocity to drop, however, the system could absorb extra money right away.

(Compare that to the theory of the Great Depression that when inequality puts all the dollars in the pockets of misers who save instead of spend, demand collapses.)

Another theory of inflation is that inflation happens if people expect inflation to happen.

If I think that prices are going to go up 5% next year, I am going to ask for a 5% raise, my employer will expect to raise prices 5% next year so it is ok...

People today do not believe in inflation so that governments can borrow and/or print a lot of money without provoking it.

That condition could go on for a long time until the psychology changes, in which case inflation returns.

What's the question?

If you're looking for more content, MMT is kind of a hot topic these days from what I gather. https://en.wikipedia.org/wiki/Modern_Monetary_Theory

In order to maintain its value (reputation), the amount of currency rewarded to an individual needs to be proportional to the amount of economic value produced by the individual.

If any group of people gets too much easy money, it will cause inflation in the price of whatever goods or assets these kinds of people normally buy.

People who receive money too easily lose respect for it because they eventually realize that the game is rigged in their favor.

People who work too hard for their money eventually realize that the game is rigged against them and it's easier for them to play a different game (e.g. Crypto).

The most rational people realize that capitalism needs an even playing field in order to work properly.

Mutual credit has a money supply that at all times equals the money used. Mutual credit has a money supply that is infinite and perfectly elastic, so presumably has no inflation or deflation.

See https://en.m.wikipedia.org/wiki/Mutual_credit and p2p cryptocurrency implementation https://docs.offsetcredit.org/en/latest/intro/economic.html

The reason we don't have massive inflation right now is because the velocity of money has crashed despite massive QE.

So the main type of inflation we're seeing right now is in financial assets, not everyday consumer goods.

There is no such thing as inflation free money. Whatever you use the money on will see inflated prices. Governments and central banks decided to exclusively use the newly created money supply on assets even when those assets are already overpriced.

Inflation is merely what happens when demand exceeds supply. When people talk about inflation they do not just mean the increase in money supply but they actually talk about consumer inflation which is indexed through a basket of consumer goods. The money entering the economy is not driving up demand for consumer goods and therefore it results in no consumer inflation. There is no surprise.

Basically what we are seeing is supply oriented monetary policies in demand starved economies.

One should look at the reasons for why demand is decreasing and try to solve problems on the demand side.

Isn't the whole idea of "money" for the government to provide a "stable currency", as a store of value and means to make financial transactions? How is it a good store of value when you take 2 to 3% of the value away every single year? Imagine, you're a retiree with 200K in savings and you loose 6K every single year, just to what's considered "moderate inflation"!!!???

People will tell you, you need to invest in real assets, like real estate or equities. In other words, barter, which defeats the whole purpose of using a currency in the first place.

Honestly, How is it that 2% inflation is so acceptable?

Richard Werner's [famous author of the 'Princes of Yen'] ideas are very much along these ideas - he even came up with the term 'Quantitative Easing'.

Money is a proxy for attention. Average lifespan of a particular currency implementation is ~30 years. What matters, is a distribution of assets between actors, not number of digits of currency units on bank accounts. Every complex phenomena is impermanent. There is no money without inflation, there is no hot without cold, life without death. But there are centrally governed currencies and distributed ones.

How do you define inflation, and what benefits do you see with inflation free money?

Inflation itself is a policy, intended to generate incentives. In addition, the central bank mechanisms for inflation are themselves "biased" in various ways.

Mechanically, it would be trivial to have a zero-inflation policy, but there are just too many stakeholders for it to be possible.

I don't believe in money without inflation, such a system is not stable. Every physical asset depreciates (loses its use value), due to physics. So if money, which can be exchanged for something of value, wouldn't depreciate, the corresponding value not lost would have to be created just for the money holders. So it wouldn't pay off to give money away and the economic activity would decrease. The result would be deflation.

So I believe some inflation rate is natural, by virtue of money being medium of value exchange. Now if the economy is exchanging more goods and services, i.e. growing, it is certainly possible for the government to increase amount of money temporarily without causing additional inflation. But in general, it requires exploitation of some new resource that was previously unexploited, so it cannot be done indefinitely and it's often hand-waved away by assuming equilibrium.

However, during economic recovery, the economy is not in equilibrium, the crisis by definition creates untapped resources, such as unemployed labor, and new possibility to grow again, so the government can apply this as an economic policy.

Actually Bitcoin is inflation free by design

Inflation free money is possible if it’s only used for barter or at least for non speculative economic activities.

That’s my initial thought. I will have to ponder more about this.

Why would a government do this? Inflation is a sneaky way to steal from the poor and give to the rich. Why give that up?