An individual inexperienced in the complexities of economics could recommend just printing more money to alleviate our perpetual money difficulties in light of the widespread anxiety over jobs, unreasonable pay, and rising costs.
But this might not the viable option.
Let us try to understand this with a small example. Suppose you go to a shop to buy a pen worth 20 rupees. You find 5 more customers there, present to buy the same 20 rupee pen. But the shopkeeper informs he has only two of those and the price of the pen has increased to Rs. 25. Now, you realize that out of 5 buyers, only 2 of them can afford to pay that price.
But suddenly, you see that the government doesn’t want their citizens to remain poor and decide to print money so that the remaining three customers too have the required amount of money to buy that pen. Now, all the 5 customers can afford to buy that 25 rupee pen. But the shopkeeper gets confused about what to do and he further raises the price of the pen to Rs. 50.
Did you saw what happened there?
This is the simple science of demand and supply. Printing more money lead the price of pen to shoot up from Rs. 20 to Rs. 50. The point is, it rarely succeeds when a whole nation attempts to increase its wealth by printing more money. Because prices would increase if everyone had more money. And consumers discover they need an increasing amount of money to purchase the same quantity of products.
Printing additional money only increases the amount of currency in circulation; it has no impact on economic activity. If more money is printed, consumers could demand more things, but if businesses only produce the same amount of goods, they will raise prices in response. In a simple scenario, printing money will only lead to inflation.
A nation must produce and sell more goods and services if it wants to get richer. This makes it safe to print additional money so that customers can buy those extra items. When a country issues more money without producing more goods, prices rise.
Nevertheless, it is not always a bad idea. For instance, many industrialized countries use increased money printing as a way to combat a recession. During the coronavirus pandemic, the US took this action to make financing freely accessible and at reduced interest rates. However, it has also stated that due to the inflation risk, the additional stimulus needs to be gradually reduced.
The United States, an already wealthy country, is the only nation that has the ability to increase its wealth by printing more currency. This is due to the fact that the majority of important commodities, such as gold and oil, that nations throughout the world buy and sell to one another are priced in US dollars. Therefore, the US may simply create more dollars if it wishes to purchase more goods. However, if too many were printed, the cost in dollars would still increase.
The bottom line is that no government can print money to recover from a crisis or recession. The most fundamental reason for this is that, in a trade, money only acts as a middleman to facilitate exchange between individuals. We wouldn't need money if goods could trade with each other directly, without a middleman.
Printing more money has no other impact than on the conditions of exchange between money and things. Nothing basic or real has changed; what was once Rs. 10 now costs Rs. 100. Similar to how awarding each student 10 additional points on a test has no significant impact, printing money does not make any difference.
