<p>There is no conclusive answer (yet). Most papers find monetary neutrality, i.e. long-term growth is independent of monetary policy (for example [Bae/Ratti (2000)][1]). However, a prominent recent study by [Jorda/Singh/Taylor (2023)][2] argues that there are indeed significant growth effects. That paper is also a good starting point in terms of references.</p>
<p>[1]: <a href="https://doi.org/10.1016/S0304-3932(00)00041-6" rel="nofollow noreferrer">https://doi.org/10.1016/S0304-3932(00)00041-6</a>).
[2]: <a href="https://doi.org/10.24148/wp2020-01" rel="nofollow noreferrer">https://doi.org/10.24148/wp2020-01</a></p>

CC BY-SA 4.0
2024-08-30T07:56:41.453Z
2024-08-30T07:56:41.453Z
jpfeifer
<p>Inflation slows economic growth. This is most easily observed by measuring hyper inflation, and economies with very high inflation. These economies do not perform well. But even moderate or normal inflation is harmful.</p>
<p>Money is a medium of exchange, it is not wealth. Creating new money does not create wealth. What it does is redistribute the purchasing power of money, from those who presently own it to those who create the new money. That is to say, it is a form of theft. There is no need to create new money, any amount of money is enough. But creating new money does have negative consequences.</p>
<p>The first and most obvious is that it discourages people from holding cash (either physically or in bank account). This process is known as &quot;savings&quot;. Inflation discourages savings. In fact, this is bragged about by inflationists, who argue that 'hoarding cash' is harmful to the economy. Inflation also encourages debt, because it causes a transfer of wealth between creditors and debtors. Which is going to be the more prosperous in the long run? A society based upon savings and being a creditor, or a society based upon consumption and being in debt?</p>
<p>Imagine a very basic 20 person economy on an island. 14 or the people are working, 6 are too old or too young to work and they are dependents of some of the other people. The economy is essentially what those 14 workers are able to produce in a year. Some portion of the economy will go to consumption, the fish which are caught every day. But some will go to the production of higher order goods, of capital. So people on the this island can consume less - that is, expend less production on consumption - and focus more production on producing higher order goods. Like traps, or fishing poles, or a fishing boat, that will make the labour more productive. Perhaps capture and enclose a wild boar, and use it to till the fields for planting. Or simply build a tool to till the land instead of doing it by hand.</p>
<p>So if all the labour hours are expended on meeting the consumptive needs of the society, then the economy would not grow. But the less consumption, the more you have labour hours freed up for the production of higher order goods, and this makes the economy more productive and makes it grow.</p>
<p>Likewise in a modern economy, individuals have a certain amount of income. The more of that income they consume, the less they have to save, and the less their savings can be reinvested in the economy, on new business ventures via investment, or lending to existing ones through the purchase of bonds. Conversely, the more they save, the more demand their is the production of higher order goods.</p>

CC BY-SA 4.0
2024-11-20T10:02:16.403Z
Lot of leaps of logic there. Comparing inflation and hyperinflation is like comparing the temperatures in a greenhouse to temperatures in an oven - that is, there is no reason to believe the effects of an extreme condition are merely an intensification of the effects of a moderate condition. Also, the perceived benefit of everyone in society saving a little and pooling those savings for profitable investment, may be very different from a small minority extorting the wages of the majority then hoarding the proceeds - the net savings may be the same, but the beneficiaries of the profits aren't.
Steve
CC BY-SA 4.0
2024-11-18T07:54:00.620Z
2024-11-18T07:54:00.620Z
Zak Young
<p>I’ve been studying economic growth models and am curious about the role of inflation. I understand that moderate inflation is often considered normal in a growing economy,
Are there any models or historical data that illustrate the correlation between inflation rates and GDP growth over extended periods?
I've looked into some basic economic texts and found general statements about inflation's impact on purchasing power and interest rates, but I haven't found detailed analyses on long-term growth impacts. Any insights or references to studies would be greatly appreciated!</p>

<macroeconomics><inflation><economic-growth>
How does inflation impact long-term economic growth?
jonathsnas
# How does inflation impact long-term economic growth?

(Asked by: username_0 on 2024-08-23)

I’ve been studying economic growth models and am curious about the role of inflation. I understand that moderate inflation is often considered normal in a growing economy,
Are there any models or historical data that illustrate the correlation between inflation rates and GDP growth over extended periods?
I've looked into some basic economic texts and found general statements about inflation's impact on purchasing power and interest rates, but I haven't found detailed analyses on long-term growth impacts. Any insights or references to studies would be greatly appreciated!

**Tags:** macroeconomics, inflation, economic-growth


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## 2 answers

### Answer by username_1 on 2024-08-30. Score: 1

There is no conclusive answer (yet). Most papers find monetary neutrality, i.e. long-term growth is independent of monetary policy (for example [Bae/Ratti (2000)][1]). However, a prominent recent study by [Jorda/Singh/Taylor (2023)][2] argues that there are indeed significant growth effects. That paper is also a good starting point in terms of references.

[1]: <https://doi.org/10.1016/S0304-3932(00)00041-6>).
[2]: <https://doi.org/10.24148/wp2020-01>


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### Answer by username_2 on 2024-11-18. Score: 0

Inflation slows economic growth. This is most easily observed by measuring hyper inflation, and economies with very high inflation. These economies do not perform well. But even moderate or normal inflation is harmful.

Money is a medium of exchange, it is not wealth. Creating new money does not create wealth. What it does is redistribute the purchasing power of money, from those who presently own it to those who create the new money. That is to say, it is a form of theft. There is no need to create new money, any amount of money is enough. But creating new money does have negative consequences.

The first and most obvious is that it discourages people from holding cash (either physically or in bank account). This process is known as "savings". Inflation discourages savings. In fact, this is bragged about by inflationists, who argue that 'hoarding cash' is harmful to the economy. Inflation also encourages debt, because it causes a transfer of wealth between creditors and debtors. Which is going to be the more prosperous in the long run? A society based upon savings and being a creditor, or a society based upon consumption and being in debt?

Imagine a very basic 20 person economy on an island. 14 or the people are working, 6 are too old or too young to work and they are dependents of some of the other people. The economy is essentially what those 14 workers are able to produce in a year. Some portion of the economy will go to consumption, the fish which are caught every day. But some will go to the production of higher order goods, of capital. So people on the this island can consume less - that is, expend less production on consumption - and focus more production on producing higher order goods. Like traps, or fishing poles, or a fishing boat, that will make the labour more productive. Perhaps capture and enclose a wild boar, and use it to till the fields for planting. Or simply build a tool to till the land instead of doing it by hand.

So if all the labour hours are expended on meeting the consumptive needs of the society, then the economy would not grow. But the less consumption, the more you have labour hours freed up for the production of higher order goods, and this makes the economy more productive and makes it grow.

Likewise in a modern economy, individuals have a certain amount of income. The more of that income they consume, the less they have to save, and the less their savings can be reinvested in the economy, on new business ventures via investment, or lending to existing ones through the purchase of bonds. Conversely, the more they save, the more demand their is the production of higher order goods.

> **Comments:**
> **username_3**: Lot of leaps of logic there. Comparing inflation and hyperinflation is like comparing the temperatures in a greenhouse to temperatures in an oven - that is, there is no reason to believe the effects of an extreme condition are merely an intensification of the effects of a moderate condition. Also, the perceived benefit of everyone in society saving a little and pooling those savings for profitable investment, may be very different from a small minority extorting the wages of the majority then hoarding the proceeds - the net savings may be the same, but the beneficiaries of the profits aren't.  

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