Elasticity of Money is a Feature, not a Bug


Pragmatic Capitalism has the article Elasticity of Money is a Feature, not a Bug.

…this idea that a fixed money supply is good is not consistent with the history of money or even the basic facts about how modern money works. Worse, it constrains our economy in ways that make us worse off in the long-run.

Here is yet another way to explain what seems to me ought to be obvious.

It’s not that an artificially fixed money supply could not work. Deflation could offset the problem of a currency that does not grow with the economy. The trouble is that deflation is so far removed from our everyday experience of money that it would require major adaptations. Whereas inflation favors borrowers over lenders, deflation does the exact opposite. This has economic consequences that hinder the growth possibilities of an economy. They don’t prevent growth, but they do make it harder rather than easier.

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