Syd, I apologize for outing you in advance, this is for the greater good of everyone. 

 

A few weeks ago, my sister sat on the couch and decided that politicians are inept (a fair point) and that poorness should not exist (altruistic and idealist, but true). She said that the eradication of suffering, due to money, (sorry, we can’t help you all with your hearts), has a simple solution. She then went on to present the fatally flawed “print more money” argument. 

 

Why can’t we just print more money and let everyone be rich? 

 

On the surface, this actually makes sense. People need money, the government has the power to print more money…why can we not dispense it to the needy?

 

Unfortunately, economics is rarely sensible, always convoluted and seems to only promise a whole lot of imaginative fuckery.

 

So here goes – economics 101 by the girl who has never taken a course on this in her life.

 

 

Why was money invented?

 

Every time I tap my card on a POS terminal, or worse, scan the Starbucks app on my phone to pick up my iced brown sugar oatmilk shaken espresso (a new favorite, not too sweet, I highly recommend) – I grow further and further away from understanding what money is. 

 

Before the invention of money, people exchanged things that they produced for other things that other people produced. A chicken for a slab of wood (or something like that – I have no idea what humans did back then). This is called bartering. A concept I love in theory but fails in widespread practice. 

 

Problem #1:

Bartering (though fun) is deeply inefficient since you need to find someone who not only has what you want but wants what you have. Economists, since they are pretentious, call this the “Double Incidence of Wants Problem”. 

 

Problem #2: 

It is very difficult to save up what you produce. Take chickens for example – a thing I know nothing of (pescatarian here) other than that their neck skin is called a wattle. Way back when, our caveman would never have been able to save up for college (not just because colleges didn’t exist but:) because 4 years of tuition would cost 40,000 chickens (also Canadian resident here, sorry Americans). Obviously by the time our man wrangled 40,000 chickens, the first half (at the very least – I don’t know the life span of a chicken) would have died or lost their best value. And so on and so forth. This is called the retention of value problem. 

 

Money therefore, solved both the incidence of wants problem and the retention of value problem. 

 

What is money?

 

Money has no intrinsic value. If you were stranded on a desert island and someone gave you a hundred-dollar bill instead of a flashlight or granola bar, you probably wouldn’t be too pleased.

 

Money is just a thing that people can keep and exchange more easily than they can keep and exchange physical goods. Sheila might have had a long and sweaty morning and needs an iced brown sugar oatmilk shaken espresso. Jenny (our barista) has just finished her wild rose herbal d-tox cleanse and needs a vat of pasta. Sheila wants what Jenny has, but Jenny doesn’t need to want what Sheila has. Jenny can run off and use that money from selling the iced brown sugar oatmilk shaken espresso, hop on over to Pepino’s, and pick up her bucket of pasta. 

 

Money also solves the retention of value problem. Our barista Jenny, rather than rushing to Pepino’s, can instead make the economical decision to cook pasta at home, save her cash, and eventually buy the New Balance 550s she has been ogling (I am so behind on sneaker fashion trends – I have no idea if this stands up, but you get the point). The creation of money allowed people to acquire more easily the good or service they wanted and to save up for larger purchases.

 

Why printing more money won’t make people richer:

 

Money is valuable because people will give you goods and services in exchange for it. To state the painfully obvious: money individually allows you the ability to buy things you want (who are we kidding, it’s always a need).

 

The term “Printing money” doesn’t really apply to the Canadian Mint just printing new sheets of $100 bills. (The Canadian Mint is the actual government company that prints money and forges our coins – I am not trying to insult your intelligence here; I personally did not know what this was). “Printing money” covers a bunch of convoluted ways in which the government could use, inject, or distribute money into the economy. 

 

A universal basic income or just printing sheets of new cash and handing it out to those in need, can have near-term benefits but long-term issues. Think candy and bubblegum now, cavities and tooth decay later.

 

Without getting into the specifics (because it is an honest-to-God horror show) these are some of the reasons printing more money doesn’t, in the long term, make people richer:

  1. It devalues the country’s currency (the more you flood the market with something – it drives down the value of said thing. An exclusive sneaker becomes less elite when every footlocker on your street corner carries 1000 of them. Same goes for currency).
  2. It affects the ability to import goods (see aforementioned devalued currency). This in turn, results in higher costs for said goods (inflationary prices). (I.e., We had to pay more to get the goods, so we sell them for a higher price to make any sort of profit).
  3. Decreases confidence of foreign investment (people outside the country, investing in said country that has printed more money. Look at Zimbabwe as a case study). 
  4. Adds cost to the government (spending policies don’t write and manage themselves).

 

Meet Inflation:

 

“A persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.”

 

You’ve probably heard of it before. If not, I’ve mentioned it above twice – so your reading comprehension is clearly lacking. It is normal to have a certain level of inflation in the economy. The problem is if Jenny (our barista) has saved $500 for her New Balance 550s – but by that point, they then cost $800. Her money doesn’t have the same purchasing power.

 

While having more money is always helpful, it doesn’t change much when the cost of goods and services rise rapidly and possibly disproportionately.  If I have $1 and something is $5, I save up another $4 but by that point costs have inflated, I’m no better off newly having $5 if that good or service is now $25. You see the issue? I also find large numbers unnecessarily daunting so this is all a particularly nightmarish scenario for me. 

 

Hallo! Guten Tag! Meet hyperinflation:

 

There is an urban legend about a man with a beard in 1920s Germany.

 

If anyone needs a refresher (you really must have skipped literally every high school history class, presumably to smoke a joint behind the bleachers), this was the time of the Weimar Republic. A cute period post-WW1 that lasted until the rise of Nazi Germany where the government tried their luck at the “print more money” argument. 

 

Hyperinflation is when a government is unwilling or unable to manage the amount of money they print. Eventually it begins to inflate so quickly that it renders their currency (in this case, the German Papiermark) utterly useless.

 

Our man with the beard took a wheelbarrow full of cash to the bank to make a deposit. 

He left the wheelbarrow outside the bank while he went inside to fetch a teller. 

When he came back the wheelbarrow was gone.

The pile of cash was still there.

 

I am giving everyone the benefit of the doubt and trusting you understand the sentiment here. 

Stay tuned next week for Part II. 

 

Written By:

Madelyn Grace

Maddy has graciously allowed the Equity.Guru audience to take a look into her investor education journey - and is here to ask all your questions, with a heavy dose of millennial cynicism and good humour (swear it's not oxymoronic). With an EngLit degree from Ryerson University, and a pedigree that includes having been killed on CW series Supernatural twice, she fits right in with the rest of the Equity.Guru team, making even the most dull financial topic approachable. Talk to her about feminism, the acting world in Vancouver and all your financial woes. Don't talk to her about pineapple on pizza, NFTs, or how cheesecake is really a pie.

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Grace
Investor Education
economics
inflation
printing money
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