{"id":95215,"date":"2026-08-26T11:58:23","date_gmt":"2026-08-26T10:58:23","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=95215"},"modified":"2026-08-26T12:03:31","modified_gmt":"2026-08-26T11:03:31","slug":"creating-money-does-not-by-itself-cause-inflation","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/26\/creating-money-does-not-by-itself-cause-inflation\/","title":{"rendered":"Creating money does not, by itself, cause inflation"},"content":{"rendered":"

This\u00a0comment was made on this blog<\/a> by someone whom I presume is a right-wing troll in response to my suggestion<\/a> that we should not worry about \u00a33 trillion in national debt.\u00a0There were many fairly similar comments. They felt coordinated. That happens:<\/p>\n

\n

Yes of course the Govt can technically print money to replay its debt but the more sterling that is printed the more the effect is felt in inflation and weakness in Sterling. Both are akin to a \u201cdefault in kind\u201d as purchasing power is reduced. So yes you are technically correct but disingenuous also as there are significant negative effects which you fail to highlight.<\/p>\n<\/blockquote>\n

I asked the person making the comment to supply evidence to support their claim. So far, they have not.<\/p>\n

And this is a reply to that comment, also posted on the blog<\/a>:<\/p>\n

I think this is an important statement, because it\u2019s what the majority of people, especially on the right, argue with \u201cprinting\u201d money is bad and will lead to negative XYZ.<\/p>\n

I think if a clear explanation of why it wouldn\u2019t, then it would be easier to counter the ingrained belief of, just \u201cprinting\u201d more money will make the situation worse not better. Now, can you suggest the appropriate response the second statement say is needed.<\/p><\/blockquote>\n

I put some time into a reply to that comment and posted a slightly shorter version of this, which some have suggested I should turn into this post:<\/p>\n

Thank you for your comment.<\/p>\n

You highlight one of the most important misunderstandings to address.<\/p>\n

Creating money does not, by itself, cause inflation. If it did, every act of government spending would be inflationary because all government spending creates new money.<\/p>\n

Bank lending would also necessarily cause inflation because commercial banks create new money when they lend.<\/p>\n

Neither claim is true.<\/p>\n

Inflation of the sort money creation can induce occurs when the ruling attempts at additional spending create demand that the economy cannot meet at existing prices.<\/p>\n

That might happen because the economy is already operating at full capacity, because essential resources are scarce, or because supply cannot expand sufficiently quickly.<\/p>\n

In those circumstances, creating still more demand can certainly be inflationary.<\/p>\n

But suppose the government creates money to employ people who would otherwise be unemployed, build houses when construction capacity is available, invest in renewable energy, improve transport or increase productive capacity. The additional spending is matched by additional economic activity. In those cases, there is no reason why that spending, which creates new money, should produce inflation.<\/p>\n

In fact, investment that increases productive capacity can reduce inflationary pressure in the longer term.<\/p>\n

The same applies to sterling. There is no mechanical relationship whereby creating another \u00a31 billion causes sterling to fall by some corresponding amount. Exchange rates reflect productivity, trade performance, relative inflation, interest rates, expectations, political stability and international demand for currencies and assets.<\/p>\n

So the constraint on government spending is real, but it is not money. It is the availability of people, skills, energy, materials, technology and productive capacity.<\/p>\n

That is the crucial distinction. \u201cPrinting money causes inflation\u201d is the wrong rule. Spending beyond the economy\u2019s capacity to respond can cause inflation. Those are very different propositions.<\/p><\/blockquote>\n

SimonW<\/a> then posted this comment in response to the second one noted above, and that too is worth sharing:<\/p>\n

Imagine the uk economy consists of an apple seller. He has 10 apples to sell (resources available). There are 10 potential consumers. The government provides \u00a38 to 8 of them to work at apple collection. The Apple seller sells them for \u00a31 each to 8 of them leaving him with 2 spare with 2 consumer unable to buy them because they lack currency.<\/p>\n

the government spends an additional \u00a32 on putting these 2 to work. Now the seller sells all 10 at \u00a31 each. Money supply expanded and prices remain stable.<\/p>\n

If the Apple supply fell to 9 available because of a poor harvest, the price would likely rise as the consumers bid against each other for the limited supply. If the government tried to correct this supply problem by putting more money into the system all it would do is drive prices higher, unless the money was aimed at increasing Apple supply.<\/p>\n

Increasing money supply when there are adequate resources is not inherently inflationary. The inflation issues faced by us now are supply issues around food and energy. Investing in green tech is like investing in apple production. Not inflationary, and likely to insulate us against future supply disruptions. There are plenty of other ways for us to spend as well which would expand the economy without adding to inflation.<\/p>\n

I hope my simple example is generally accurate!<\/p><\/blockquote>\n

I think it is.<\/p>\n","protected":false},"excerpt":{"rendered":"

This\u00a0comment was made on this blog by someone whom I presume is a right-wing troll in response to my suggestion that we should not worry
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,174,224],"tags":[],"class_list":["post-95215","post","type-post","status-publish","format-standard","hentry","category-economics","category-modern-monetary-theory","category-neoliberalism"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95215","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=95215"}],"version-history":[{"count":5,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95215\/revisions"}],"predecessor-version":[{"id":95220,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95215\/revisions\/95220"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=95215"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=95215"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=95215"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}