Why Not Just Print More Money?

What if you got an envelope in the mail from the U.S. Department of Treasury that had $5,000 in it?  You were so excited that you called your friends and found out that they all got the same envelope.  You then read an article at elementary-finance.com that said that everybody in America got $5,000 because the government was concerned that people weren’t making enough money.  Great news, right?

 

The question is being asked all over America:  Why doesn’t the government just print more money?  We could all be rich if we could buy a color printer and print our own money and our country’s problems would be solved.  Why isn’t it that easy?  The answer all comes back to the most basic economic principle:  Supply and Demand. 

 

Last time I was at the beach, I found sand everywhere.  Tens of millions of tons of sand is laying on beaches all over the world.  I’ve never seen security guards stationed on the beach guarding the sand.  People aren’t going to the beach to steal sand and nobody is buying engagement rings with sand as the centerpiece.  Compare that to a diamond.  Guards, sophisticated security systems, jewelry stores on every block, and people enduring the most difficult environmental and political conditions to get their hands on the tiniest of diamonds.  Why?  Supply and demand.

 

Money represents relative value.  In other words, it changes as economic conditions dictate and one of those is supply and demand.  When you pile up enough sand, it has value.  It takes a lot of sand, though.  If there were as many dollar bills as there were grains of sand, you would need a lot of help to carry in all of your dollars to buy a hamburger.

 

A more economic answer would be this:  If we printed more money, most people would take their $5,000 and buy stuff.  Stuff would quickly run out and factories would have to make more of their stuff.  They would order more raw supplies at a higher price because of increased demand.  Places like Walmart would be forced to pay a higher price for the items and would have to charge the customer a higher price.

 

An even simpler answer is that the more money that is put in to circulation, the more expensive your stuff will be.  This is called inflation.  More money would not indicate more wealth.  You would be no richer than what you were before that envelope of cash.

 

Sorry to ruin your dreams but in the end, you should be alarmed when you hear that more money is being printed.

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