What If Congress Gave Every American $1 Million?

The title of this week’s opinion piece is a question that frequently comes up on the matter of inflation. As readers of these columns know well, the view here is that we presently do not have an inflation problem; rather we’re suffering the bitter, higher-price fruits of lockdowns from two years ago.

As my new book The Money Confusion asserts over and over again, inflation is a devaluation of currency, nothing else. In which case there’s no inflation to speak of today as evidenced by the dollar’s rise against every major foreign currency along with gold. Command-and-control isn’t inflation despite what so many believe.

Back to the question, some who are skeptical about my stance ask what would cause inflation. As I make plain in the book, inflation is a policy choice of a weaker currency as opposed to a money-in-circulation phenomenon. Many believe “too much money” circulating causes inflation, which means many don’t understand what they’re defining. Money that circulates in abundance signals the opposite of inflation given the basic truth that few to none would exchange real goods and services for money that commands fewer and fewer goods and services. In short, the surest sign of inflation is when the currency in question is circulating less and less.

Ok, so what if the federal government gave all of us (330 million Americans in total) $1 million each? That’s the question sometimes asked. Wouldn’t that be an inflationary event? It would be, but not for the reasons readers might think.

The simple truth is that government couldn’t give us $1 million each owing to the truism that the act of doing so would render $1 million quite a lot less than $1 million. Think about it.

Assuming the printing or digitizing of dollars to the tune of (330,000,000 x $1,000,000), readers can rest assured that those with dollars in savings ahead of this attempted handout would feverishly strive to switch their wealth out of dollars well before what vandalizes reason becomes reality. Really, why hold onto that which, as a $1M per person handout indicates, will soon be worthless?

From there, we can ask what providers of goods and services would do. Would they readily go to work for, or provide goods and services for dollars? The question answers itself.

It’s all a reminder that markets anticipate. Always and everywhere. Assuming a policy choice of giving out $1M to 330,000,000 individuals, the devaluation of the unit of account (in our case, the dollar) would take place well ahead of an increase in so-called “money supply.”

Indeed, the argument made in The Money Confusion is that “excess money” or “too much money” is what happens after inflation. Which really is a statement of the obvious despite what’s obvious being rejected by 99.9999% of currency dabblers. Thankfully truth has never been arrived at through the counting of heads.

To presume that inflation is caused by “too much money chasing too few goods” or “too much money in circulation” is to imagine a level of information asymmetry in the markets that doesn’t exist in any market. It assumes those with money in hand know what the providers of goods and services do not. It’s not a serious view.

To produce goods and services is to demand them, at which point those with goods and services on offer are most attuned to existing or looming devaluations of the currencies being offered to them. Which is why the devaluation that is inflation is what comes first, followed by “excess money.” To be clear about this excess money, it logically doesn’t circulate. Its devaluation ensures quite a bit less in the way of circulation, or none at all. Inflation is devaluation, not too much money.

Applied to the extreme notion of $1 million per American handed over to us by the benevolent souls in government, they quite simply couldn’t gift us with $1 million each simply because the act of doing so would once again render $1 million worthless. Under such a scenario the dollar would be reduced to litter as opposed to money, and a measure that measures nothing. Cash registers would no longer hold dollars. Why would they?

Applied to the present, the dollar’s global circulation and government “budget deficits” denominated in dollars are the surest sign that the “inflation” of the moment is mostly an emotional theory rooted in a misunderstanding of what inflation is, as opposed to a sad reality. This isn’t to defend the dollar’s stewardship over the decades as much as it’s to say that what economists, politicians and pundits imagine inflation to be quite simply isn’t.