We may feel rich for the moment, but clearly all we are doing is diluting the money supply… Thus we see that while an increase in the money supply, like an increase in the supply of any good, lowers its price, the change does not—unlike other goods—confer a social benefit.
Whereas new consumer or capital goods add to standards of living, new money only raises prices—i.e. dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value…its utility lies in its exchange value, or “purchasing power.
December 30, 2006
Posted by blogger at 12/30/2006