The “printing money causes inflation” myth

One of the most common, but ill-informed criticisms of Modern Money Theory (MMT), is that if the government just prints money and spends as much as it can, then it will cause inflation. This is quite correct. Of course, MMT does not advocate that the government spends as much money as it can print, it is not a Magic Money Tree as some have described it. However:

  • Government spending is not inflationary if it can bring idle resources back into production (e.g. house-building, employment). (See “Seven Replies”, below)
  • All spending is inflationary if it drives the demand for goods above that which can be produced. Energy (gas, electricity and petrol) prices in 2022 are high because of reduced availability and more money will not make energy more available (except to the wealthy).

Here in the UK, inflation is at a 40 year high (Sept 2022) (ref). According to a Research Briefing published by the House of Commons Library (ref) the main reasons are consumer goods and energy prices. Although MMT proponents and the Bank of England (BoE) would not equate quantitative easing (QE) with government spending per se, even the BoE acknowledges that QE helps control inflation (ref).

But what about the hyperinflation in Germany’s Weimar Republic after World War I? As others have pointed out, inflation was caused by a war-devastated manufacturing and production system, and demands of the external debt coming from reparations and prewar debt (ref) (ref). Germany printed more money as a response. Printing money became an indicator of hyperinflation, it was not the cause.

A country with monetary sovereignty can and does print money, and can do so responsibly without causing inflation. In other words, money created for frivolous purposes may lead to inflation, but money created to enable production will be backed up by the purpose for which it is put (e.g. building houses).

See also


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