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  • Sneha Sucharita

Why will printing money not make an economy richer?

In a world where we humans depend largely on money to meet our basic needs and fulfill our never-ending wants, money seems to be a simple solution to many of our problems. However, if that is the case, then have you ever wondered why can’t economies that are underdeveloped and struggle with poverty cannot print more money to get richer?


The truth is, money is just a medium of exchange that facilitates the process of buying and selling goods and services. It is the goods and services themselves that cater to the needs and satisfy the wants of humans. Hence, the growth of an economy is measured in terms of the real value of the produced final goods and services in a specified period.


More money in the absence of goods and services will not ensure economic prosperity. Instead, it is the quantity and quality of economic goods and services produced and consumed by the society that indicates its economic growth.


Moreover, a sudden and untimely act of printing and supplying more money than usual negatively affects the economy. More money in the hands of buyers will lead to an increase in their demand for goods and services even when there is no significant increase in the supply for the same. Ultimately, this disequilibrium in the market forces of demand and supply will cause the prices to rise, referred to as inflation. As a result, the value of money will plummet. In simple words, the purchasing power of money will fall, i.e., the same unit of money that earlier could buy a given number of products would now buy less.


Such a consequence of printing money was evident from the economic crisis in Germany during 1923 when the Weimar Government recklessly printed paper currency to repay the war loans and reparations. With the rise in circulation of printed money in the economy, the value of the German currency fell drastically. While in April, one US dollar was equal to 24,000 German marks, by December, one US dollar equaled 98,860,000 German marks. Due to such a plunge in the currency value, the German economy suffered from hyperinflation as the prices of goods and services became exorbitant. People had to load carts and baskets with the paper currency to buy a single loaf of bread. The value of the German mark was so insignificant that even the smallest of payments required huge sums of money.


When money is printed, it can benefit an economy by stimulating the demand for goods and services, ultimately boosting the production of these goods and services. However, printing and circulating excess money faster than the real growth in poor and emerging countries may cause more harm than good to its economies through consequences like hyperinflation.


References:


1. "It is the quantity and quality of economic goods and services that a society produces and consumes, which indicates economic growth."

Source- https://ourworldindata.org/economic-growth

2. The economic crisis in Germany during 1923.

Reference- Socialism in Europe and Russian Revolution