eli5: How does an economy grow if the money supply doesnt increase in that same year? In gold standard suppose, gold reserves are not increased but economy still manages to grow. How is that possible, how is an economy growing on a stable money supply?
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The “economy” is a fancy way of saying “how motivated are people to work”.
The actual money being traded has no real purpose or value. It exists as a means of dividing goods into tradable components.
Someone who makes a portion of a fighter jet can’t sell that fighter jet to someone else, and they wouldn’t want to trade it for a hamburger.
This is where inflation and deflation come in. The “value” of the money changes as the arbitrary assignment of worth changes in people’s heads. If I give my worker 1 shmeckle for every 5 shmeckle donut I sell, I get 4 shmeckles. But minimum donut wages are now 2 so I’ll charge 7, and now that I charge more the land lord needs more money so my employee needs more money and so on.
No one is “getting paid” they are being assigned a value for their work and effort. What is happening is that people are collecting raw materials, people are refining those materials, people design products from those materials, people make those products, and all of this is delivered.
The “economy” issue comes when people want to cheat and hack the system to syphon as much money as possible out of this system for themselves while contributing nothing. That is what capitalistic wealth means.
Now to be fair, there are people who do add to the system, making the system work better. Efficiency, marketing, innovating quality. It’s huge corporate bonuses that cause companies to fall under.
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