Does Increasing the Money Supply also Increase Economic Growth?

Money is a medium of exchange that facilitates transactions between producers and consumers, but it does not cause economic growth on its own. The belief that increasing the money supply leads to economic growth is misguided because money is not consumed or productive. Instead, it is the goods and services that people demand, and the purchasing power of money that they seek. A decrease in the money supply can actually lead to an increase in its purchasing power, making it more valuable. Ultimately, economic growth comes from the production of goods and services, not the circulation of money.

In a free market economy, the quantity of money does not impact the purchasing power of money or the availability of goods and services. The market naturally determines the final state of money's purchasing power, and there can never be an excess or deficiency of money. Money's role is to facilitate indirect exchange and improve our lives through consumption. Production is the means to achieve consumption, and any attempt to increase consumption without an equal increase in production leads to unbacked consumption, which is unsustainable. Monetary pumping, which generates demand not supported by production, is a harmful practice that ultimately comes at someone else's expense. In summary, the market economy ensures that the quantity of money available is sufficient for everyone to fully enjoy the benefits of production and consumption.

Unbacked consumption, fueled by excessive money creation, undermines real savings and ultimately hinders economic growth. Real savings are essential for funding the production of better tools and machinery, which in turn leads to increased production of consumer goods and services. Unchecked consumption, however, diminishes the flow of real savings and can lead to an economic slump. Central banks attempting to pull the economy out of recession through monetary pumping can worsen the situation, as it increases unbacked consumption further and depletes real savings. This can expose the risks in fractional reserve lending and potentially lead to bank runs. As the economic slump deepens, it becomes increasingly difficult to find credit-worthy businesses, making it unlikely that banks will expand lending, even with further monetary pumping. In the end, excessive money creation only further devastates the economy by undermining real savings. While an increase in demand can set off a chain reaction leading to economic growth, it is crucial that this demand is backed by real savings and production.

Increasing the money supply alone does not guarantee economic growth. While it may lead to increased demand for consumer goods and services, the necessary infrastructure to support this production must be in place. If real savings are insufficient for infrastructure creation, economic expansion will not occur. On the contrary, an increase in the money supply can weaken the formation of real savings and hinder economic recovery. It's important to remember that money functions as a medium of exchange, not a means of payment, and its increase does not inherently strengthen economic growth. Instead, it can undermine the prospects for sustained growth.