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 money supply isn’t stable. Banks constantly create money by giving out loans. The idea that banks loan out deposits is a myth. Rather there is a legally defined ratio that is allowed between deposits and total loans, but thr ratio is large, you can have a lot of loans for a given amount of deposits, and in practice it is flexible as well.
If you don’t mind me asking – who is this post aimed towards?
Playing devil’s advocate – the post also implies “economy growth can only come from increasing money supply” something you probably should flesh out a bit before we auto assume it to be the default assumption.
Since the gold standard hasn’t being used in most western countries for sine around half a century ago, this post looks aimed at a specific group of people advocating for this (rather than querying a general viewpoint).
Many economists advocate for slow inflation, and may only advocate for the gold standard if the rate it is mined is also low.
There’s a reason nobody uses gold standards anymore. Not having control over your money supply is ***BAD.***
The Gold standard doesn’t really exist. $1 gold = €1. Its only the confidence people have in that currency, and that confidence is running out as inflation (whereby that $1 actually buys you less) coupled with increasing prices, and generally people fucked off with life, worldwide, with politicians who, have no plan from the start “know its a high paying job” that’s hitting! (Is this a new thing? History/Present)
Money supply does increase. When you create an invoice you create money in your balance sheets.
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