Bob Fraser explains why printing money doesn't always cause inflation. When factories have spare capacity, extra money just fills unused production. When they're at full capacity, it forces higher wages and investment costs, which raises prices.
The key is when you print the money. So if you have a factory, Ben, and you're making 500 widgets a month and you're running at half capacity, you can make 1,000 widgets a month and you're dying because you're barely keeping the doors open, the lights on. And I come and say, Ben, I want to buy another 500. I'm going to print money and buy 500 widgets from you a month. You're going, awesome. Are you going to raise your prices? No, you're wiping the sweat off your brow. You're like, I can pay my bills. I'm good. It's not inflationary because you don't have to expand capacity. You don't have to hire anybody, raise new rates. You don't have to buy new buildings. Now, on the other hand, if you're making 1,000 widgets a month and you're at capacity, you are cranking, you're busting out, all your people are working hard. There's no excess room in your building. Everything's maxed, right? And I come and say, I'm going to, I want to buy 500 widgets a month from you. You're going to say, I can't do it. Or I'm going to, I'm going to have to expand. I'm going to have to hire more people, give more We give weight, give raises, pay overtime, whatever. You follow me? It's inflationary.
