Monetary Inflation Won’t Create Economic Growth

August 18, 2023

by Jörg Guido Hülsmann Mises.org

When it comes to matters of money and banking, all practical political issues ultimately hinge on one central question: can one improve or deteriorate the state of an economy by increasing or decreasing the quantity of money?1

Aristotle said that money was no part of the wealth of a nation because it was simply a medium of exchange in inter-regional trade, and the authority of his opinion thoroughly marked medieval thought on money. Scholastic scholars therefore spent no time enquiring about the benefits that changes of the money supply could have for the economy. The relevant issue in their eyes was the legitimacy of debasements, because they saw that this was an important issue of distributive justice.2 And after the birth of economic science in the 18th century, the classical economists too did not deny this essential point. David Hume, Adam Smith, and Étienne de Condillac observed that money is neither a consumers’ good nor a producers’ good and that, therefore, its quantity is irrelevant for the wealth of a nation.3 This crucial insight would also inspire the intellectual battles of the next four or five generations of economists—men such as Jean-Baptiste Say, David Ricardo, John Stuart Mill, Frédéric Bastiat, and Carl Menger—who constantly made the case for sound money.