INFLATION AS A RESULT OF AN INCREASE IN THE MONEY SUPPLY? I DISAGREE

There is a consensus that increased money supply is the cause of inflation. Imagine an extremely thrifty nation where every inhabitant starts receiving an extra EUR 5 000 a month. The inhabitants do not change their consumption habits and start saving the EUR 5 000. Will there be inflation? Of course not.

Or let us replace an extremely thrifty nation with a country that has reached its consumption ceiling. People live in spacious houses with photovoltaics and heat pumps, own cars and electronics of more expensive brands, go on three holidays a year. The country is food self-sufficient. Farms are automated and robotic. Each resident starts receiving an extra €5 000 a month. He does not need it because he has all the necessary things for a comfortable life. Quite logically, he starts to put money aside. Is this an impulse to increase inflation? Of course not.

The increased money supply is therefore not the cause of inflation. Economists could exercise their brains a little more.

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