If humans manufacture currency, why can’t we manufacture more money and hand it out to the less fortunate /lower class?
In: Economics
Inflation.
The real reason: the people who print the money don’t want to do that. Iirc, they give it to the banks so the banks can lend it and make more money.
Printing more money to give to poorer people would result in inflation, making all of the money worth less. But also, it isn’t even necessary.
We can and do redistribute money through taxing and giving people welfare payments and public services.
To address class inequality we wouldn’t need to print new money, we could just give poorer people a larger amount of the money that currently exists.
If too much money is printed & spread into circulation, the value of the dollar plummets. Imagine paying 1000 dollars for a gallon of milk because the value of 1 dollar crashed due to market over saturation. BUT wages stay the same! (hyperinflation economic depression) Some eastern European & Latin countries have tried this tactic in times of economic hardship but it backfired and kids were literally given thick stacks of money to use as building blocks to play with. The base dollar was that useless. And then other countries had to bail them out in exchange for various natural resources or complete government overhaul.
Without something backing it, money is just paper. Economies are massive in scale, but not infinite. Each bank note is essentially a portion of a government’s wealth. Printing more money, but not generating more wealth is simply dividing that wealth further among currently circulating notes, not creating more.
Hyperinflation is basically that on steroids. Eventually you get to the point that the money isn’t worth the paper it’s printed on.
We need money to buy things. Who builds and manufacture things to sell? Other people who also need money.
If money was manufactured and just given out to everyone then no one will want to build or manufacture anything. So then we will end up with just money and nothing to buy.
Ex. Imagine If a farmer is the only one growing fruits and veggies for his town and he is given endless money to live. He will stop growing the fruits and veggies because why bother? So there won’t be any fruits and veggies for anyone in his town to buy. If the same happens to the Baker, the butcher, and everyone else who is doing a business, then business will simply stop. And everyone will starve with a boat load of money in their banks.
Your question contains the answer.
1. Humans manufacture currency.
2. Why can’t we manufacture more money?
Because currency is not money. The idea behind money is that I can dig a hole and hide enough money in there to buy a week’s groceries. Whether I come back 10, 20, 50 years later, that money needs to be worth close to a week’s groceries. You can create as much currency as you want. Alan Greenspan famously said the US can always pay it’s obligations because they are in US dollars, but we cannot guarantee the purchasing power of those dollars. In other words, we can always pay out someone’s social security benefits, but there’s no guarantee those benefits will be worth anything.
Money is a store of value. Currency is not. Which is why we can create currency, but we cannot create money. We can create wealth by producing goods and services, but we cannot create money. This is why people have used gold as the standard. The supply is stable, increasing only 1-2% each year, It doesn’t get used up, and countries will accept it to settle trade.
Lots of forms of money have been tried, including tobacco in Virginia. They even passed laws regarding the quality of tobacco that would be accepted as money. These schemes obviously failed.
Lets talk basics. Let’s say every country in the world has a piece of basic printer paper to represent their countries wealth. Let’s zoom into one country’s piece of paper, let’s say the USA. Every person in the USA owns a portion of this piece of paper. However, the USA can never have more than it’s one piece of paper. If you keep dividing this piece of paper, the pieces start to become worthless. If there were only two pieces of this paper in existence, would you be happy to own only one piece? Of course, it would be 50% of the whole. If there were billions of pieces, would you then also be happy with one piece? No, because you own a smaller part of “the whole”, and when “the whole” decides to cut itself apart and increase the amount of pieces they make, then it becomes a smaller and smaller percent of the total amount it’s worth
Think about it this way: part of the reason something is valuable is because it is rare. If there is only one of something, it’s quite rare, and people would give up a lot more for it. But if there were two of the same item, it wouldn’t be worth quite as much. And if there were hundreds? Now the amount you’d be willing to give up goes down a lot–you’d just find one of the other owners and try to get it for less. And if there were millions? You’d give up even less for it. And you can keep going.
Money works the same way. The more of it you make, the less each individual dollar is worth. Which means that prices go up: the loaf of bread I’m trying to sell hasn’t changed in value, but what you’re giving me in exchange for it (money) has. So I need more money for it to make up the difference. So you’ve printed more money and given it to the poor, but they can’t buy anything with it because it’s not worth what it used to be worth…which means they end up still being poor.
We never manufactured money. We just sort of had an agreement with the state that the bill youre holding is worth whatever its worth. Lets say potato is what you need to eat in order to survive. Now lets say you work as an accountant for someone who sells potatoes. He gives you 3 every day in exchange of your potato accounting services. Now youve eaten one as your daily meal and youre left with 2. What do you do of them? You go to someone who has say, coke, that you need to drink after youve had your food and exchange one potato for coke. The guy who sells coke probably exchanges them for something else to get other goods and services he likes. This is what is called a Barter system. A long time ago we realised flaws with this system. Inconvienience being the biggest one. So we agreed with the government that hey, if I hold this piece of paper in my hand, it should have a value. And govt said, I agree. If you happen to possess that note, you either exchanged goods, services etc to get it. Those goods and services were used by people who did their part in terms of goods and services to earn that money. Instead of having potatoes and coke bottles being exchanged, we just decided we agree that this bill of one dollar has a one dollar worth of value and anyone who tenders it in can get one dollar worth of goods and services. So when you print more money, we all agree that we are going to provide in goods and services, to back that amount. Which is why notes in my country have governer of our reserve bank’s signiture along with a promise that goes something like “I promise to give bearer of this note 10 rupees”
Oh and to answer your question, when you print more money, it loses its value. So the can of coke that you could buy for a potato, now if theres already too many potatoes in the market, the guy will probably ask you to give 2 potatoes because how less in value they are. That way, your potatoes have lost their value a bit, and now you need to ask your potato shop employer to give you more potatoes so you can buy other things with them. Its ofc not that simple, so I do suggest you read up on this if you feel interested. I suggest reading on Venezuela’s Currency crisis.
All of the responses to this to date repeat the same error.
We can’t because the people who run governments don’t want to.
A government can create and spend money without inflationary risk while the economy is operating below capacity.
The reason for this is simple. Imagine a simple economy where total production possible is 100 widgets, but demand is only for 80 widgets. The government could simply create money to either itself buy, say, 15 widgets or to allow citizens to increase their demand by 15 widgets. Now demand is 95 widgets, still below capacity. Does the seller of widgets put prices up because they now have less spare capacity? Of course not.
Now, if the government increased demand by another 10 widgets, then you’d get inflation because the number demanded exceeds the economy’s capacity to supply it.
The simplistic economics most people think they understand assumes an economy operating at capacity and ignores the presence of money. Thus when people say ‘printing money causes inflation, look at zimbabwe’ they are just repeating the nonsense fed to them by people who profit from their misunderstanding.
Tl;dr: we can, governments just choose not to. Anyone who answers this with ‘but inflation’ needs to explain Japan, not Zimbabwe.
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