Where do steeel come from?

Where does the money for inflation come from?

• When I say "money", I don't mean cash... I don't mean the physical currency (paper and coin) that are sometimes used to transfer assets. I mean the net-worth of everybody. Consider this: the total net-worth of the country is increasing, right? Not only does each person's bank account have more in it than it did 100 years ago (remember? when it cost a nickel to see a movie?), but there are more people, too. The stock answer for "where does this extra money come from?" is always "the gov't just prints more", but I'm not sure that I buy that answer. Here's why: 1 - Printing money isn't the same as creating assets, right? For example, suppose every little bank could print money on special laser printers. They wouldn't have to keep big pallets of money in their vaults, anymore. Instead, when you make a cash deposit, they'd credit your account and put the actual cash in the shredder. Then, when you want to make a cash withdrawal, they'd debit your account and then print you out however much you withdrew. (In fact, you could say that this type of thing is exactly what they do with money-orders, or that this is what *you* do when you write a check). The point is: when they print the money, they're not adding to anybody's balance sheet; they're just providing you with a way of transferring some of your assets via paper. When you sum up your bank-account balance and your cash holdings, it still comes out to the same amount.... and the bank didn't add anything to *their* assets, either. In other words, the gov't seems to just print money as its citizens need to convert some of their bank-account balances into "walking around money". 2 - Every dollar that someone adds to their net-worth had to come out of someone else's pocket. When I get paid by my employer, my account grows by $X and their account decreases by $X. For the gov't to grow its assets by printing money, this would have to show up in their balance sheets somewhere, right? When you look at their net revenues, you'd have to see something like: "Income taxes brought in $X billion... admission fees to national parks brought in $Y million... oh, and we just decided to print up an extra $Z billion to help pay the bills". But I've never seen anything like that on accountings of federal revenue (unless they disguise it with some euphemism like "emergency solvency measures" or something). I'm not asking why *inflation* happens (where aggregate demand increases faster than aggregate supply), because, in order for demand to increase in the first place, you need either more *people* waving money in the air bidding for a product, or you need the same people waving more *money* in the air for it. Either way, there's more money being waved in the air in competition for a product, and I want to know where that money came from. I also don't think that the notion of "increased worker productivity" explains it because, even if a worker can produce 2x as many widgets for the same price as they could 10 years ago, then that same amount of money is coming out of 2x as many pockets as it did 10 years ago. How did those additional pockets have that extra money (since it didn't come from them *not* buying something that they *used* to buy, or else aggregate demand wouldn't have increased)? So, what gives? Where does all of this increased net-worth come from?

• Answer:

  Money is created by government ("printing money"), or commercial banks. Everytime a bank lends money to somebody it creates new money. You put $100 into your checking account, the money in economy does not change. But then the bank lends $80 of your money to somebody, so they went from zero to $80, and you still have $100 in your checking account, so amount of money increased by $80. It works both for commercial bank, and central bank lending. Look up "fractional reserve banking" and "monetary multiplier" if you want more info.