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The logic of no inflation until full-employment

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Creighton posted on Fri, Jun 29 2012 2:15 AM

Okay, I have been thinking this one through and I want all yous guys' thoughts.

So the argument goes that until full employment is reached, newly printed money will not cause price inflation as new goods would be produced.  Say, 100 people lay around not doing anything, then the government runs off some dollar bills from a printing press and pays them to build a widgets.  The inflation would occur had the total number of goods in the economy stayed the same, but since the new money was used to cause people who weren't doing anything to create new goods (thus increasing the total number of goods too), the inflation is staved off and seemingly everyone is magically better off.  Apprently wealth has been printed off a press.


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I presume these 100 people value the newly printed money not as a collectible item. They decided to work for this money in hopes to exchange the money for some goods (or services, but let's not overcomplicate). Now they are going to outbid the other people who want these goods using the new money - and the only way to outbid is by rising prices, thus the price inflation.

Apparently, the goods they wanted are not among the goods they produced, or they would have produced them without the monetary incentive (I am not going to explore "what if they wanted them but not enough to work" just right now). Also, nobody on the market wanted the goods produced by "the 100" more than what they already had, or else "the 100" would produce and trade to get what they wanted. To put it in a few words: nobody wanted these newly created goods bad enough to make them happen. Luring "the 100" into their production was a waste of wealth, not an increase of wealth.

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...but since the new money was used to cause people who weren't doing anything to create new goods (thus increasing the total number of goods too),...

1. Interesting. If these workers can be productive, making widgets, why has nobody hired them until now? There is plenty of money lying around. Why do we need new money to hire them?

The only possible answer is that nobody is hiring them because, in the opinion of the free market, they are not worth hiring. Meaning they will not be productive enough to justify paying them whatever they will get under the new scheme. Meaning they won't "make new goods", at least not enough to justify paying them what they will get.

Bottom line, they get money to spend with no increase in productivity.

In practice, this is always the case as well, because new money is always given to the govt and its friends, who are all unproductive.

2. Even those who, like Keynes, are for money printing to "stimulate the economy", admit in moments of honesty that the increased employment is acheived by lowering wages, which is done by reducing the purchasing power the dollar, aka price inflation.

Of course, in modern times, people are hired to do nothing with the new money, meaning they get govt jobs. Even Keynes did not envision this train wreck. Because the only way to keep them employed is to keep on printing money, since they do not generate profits for anyone. And of course, constant money printing for an ever increasing mass of people will lead to hyperinflation sooner or later.

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