Do You Need More Money for Economic Growth to Occur?

I tend to agree with his summary:<p><i>Economic growth occurs either because we produce more of existing things, or because we introduce new things that that are more valuable than the old things we produced – which shows up in relative price differences. The level of absolute prices is irrelevant. The level of nominal spending is irrelevant. The stock of money is irrelevant.</i><p>One of the things that I find challenging, is explaining that the &quot;rich&quot; don&#x27;t have all the money in a bank somewhere and if they would just let it out there would be more for the &quot;not rich&quot; people. When someone&#x27;s portfolio invests in corporate bonds that the corporation issuing those bonds is using the proceeds to increase their production, they are creating an expansion in the economy which will provide jobs for people and by working money for them to spend. And yet the company will pay back the bonds and the rich person will still have all their &quot;money&quot; and more people will now have jobs.

No. In the real world there are tiny little behavioral complications like price-setters being more reluctant to lower prices than to raise them (especially wage-takers and wage prices) and people trying to hold more money as they feel less secure or as prices are falling, and these add up to huge macro effects that prevent this neat scenario from being remotely true in reality. In reality, too little money flowing often prevents trades from occurring. Understanding that is practically the story of the last 100 years in economics from Keynes to Friedman to Scott Sumner.

I think updating the TLDR version to &quot;No, that confuses a stock with a flow, which is a common error in economics&quot; would help people who are going to glaze over past the first paragraph to understand the crux of the issue better.

The author is technically correct but leaves out an analysis of deflation.<p>To tl;dr their argument: if the economy consists of 10 cans of beer and also of $10, then you distribute the beer at $1 per beer. If the number of beers jumps to 20, then you distribute the beer at $0.5 per beer. Economic growth (more beer) has occurred, even though the money supply hasn&#x27;t.<p>But what if you know that next year there will be 20 cans of beer? Then you don&#x27;t buy any beer this year, because each beer you buy this year costs you two beers you could have had next year. If the number of beers goes up year after year, then it is always advisable to wait to buy beer.<p>However, if you don&#x27;t buy beer this year, then the beer company might not be able to expand its production of beer next year. In that case, everyone loses - you didn&#x27;t buy beer when you should have bought beer, and the beer company doesn&#x27;t get to expand production for a market that wants it to expand production.<p>Deflation is a prisoner&#x27;s dilemma that is solved by printing money to match, as closely as possible, the rate of economic growth.

When private companies take out loans, that creates more money. So economic growth causes the money supply to increase. If they default on the loans, the money created previously is still there.

I hope I didn&#x27;t just skim a long-winded explanation of money velocity... in some attempt to debug the usefulness of increasing the money supply in a real economy.

tldr: You need more money for measurements of economic growth to grow, whether you need it for actual growth is an open research question.

Dear author: You lost me when he made a quip about Bud watering down beer &#x27;even more&#x27;. It&#x27;s a 5% beer. That&#x27;s how they make it, nothing more or less. You loose the trust of your audience when you throw in things like that. I don&#x27;t want to feel that I have to read the article which checking everything you say. I&#x27;d rather not read it.