Why didn’t USA experience huge inflation after giving USSR huge aid during WW2 and aiding Western Europe through Marshall Plan?



Why didn’t USA experience huge inflation after giving USSR huge aid during WW2 and aiding Western Europe through Marshall Plan?

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In economics, inflation is a general rise in the price level in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

Giving money to another country doesn’t generally do this.

Inflation happens when a country increases, not just the amount, but the *concentration,* of currency in their national circulation. If a country multiplies the circulating currency within its borders by ten, it will become ten times less valuable, but if all that money goes somewhere else it’s less of a concern. There’s more money, but it’s also circulating among more people.

In addition, the US benefits from the fact that the international oil trade is denominated entirely in dollars. We give dollars in return for oil, but the dollars can only really be spent with us as well, or at least with other nations who accept trade in dollars. So we effectively have a giant scam going where we exchange oil directly for something they have to give back to us in return for something worth less than both the oil they sold *and* the dollars we gave them, as every stage of the process involves profit extraction. Essentially, we profit twice from every sale of oil: first when we buy oil for less than we expect to produce economically from its consumption, and second when the dollars we gave them are given back in return for less labor or goods than those dollars cost us to produce.

As a result, US dollars have a lot of wiggle room before they become devalued. If you have a lot of dollars, you just buy a lot of American goods, or oil, with them, and buying oil is effectively equivalent to buying American goods anyway. You can pump more dollars into the economy without causing a problem as a result, because demand for dollars will always be high regardless of supply.

After the war, those countries needed money to rebuild. Since the U.S. was on the gold standard, the countries exchanged gold for U.S. dollars, then issued their own U.S. dollar backed currency to rebuild, with the plan being to exchange U.S. dollars back to gold once they got back on their feet. However, this plan backfired when the U.S. came off the gold standard a couple decades later and the U.S. just kept all of that gold. It’s one of the main reasons the U.S. and the dollar are so dominant in the world economy today.

Why would it? If anything, giving help to another country causes deflation.

Inflation at it’s most basic form, happens when there is more money than goods and services to spend it on. If the government has 1 billion dollars and it gives it to the USSR, it means that they will invest 1 billion less in say, roads. Road-building contractors will either have to charge less or not work.

Now, inflation is demonized and pictured as undesirable, but you need a little bit of inflation for an economy to grow.

The help they gave also came with a lot of strings attached, overtly or not. You give West Germany a billion dollars to rebuild? Where are they going to buy steel, cars, canned goods and other manufactured items when the vast majority of the existing factories are in the US? Now, this would actually cause inflation, but it balanced with the fact that the money inputted was also outputted.