If the economy grows by x% this year and all your money is in cash, then your relative share in the economy has declined. So of course the value of your cash has now reduced. The government was only indirectly involved insofar as it issued the currency that the value was measured in.
If you want your money to stop losing value, stop the economy from creating more value.
With economic growth, you would expect the economy to produce more items, thereby being able to buy the same things for cheaper. E.g., if we get better at producing electronics, you would expect their price to decline - and that's precisely what we've seen in the past couple of decades.
It is true that a period of economic growth could induce inflation in the short run if the growth resulted in an expansion of credit, which increases the money supply even if M1 is stable. But there's only so far you can stretch the money multiplier. And on the other hand, monetarists believe that increasing the money supply could resolve a recession, but for one, an increasing money supply clearly isn't required for economic growth (the 19th century in the US is emblematic of this, but in particular there were decades of deflation within that century with economic growth), and for another, increasing the money supply in the monetarist framework is brought about by a central bank, not caused by the growing economy.
[0]: Figure 1 of https://www.stlouisfed.org/publications/regional-economist/s...
I would also expect the value of the electronics industry, and its profits, to rise. Where's the additional money to denote that value coming from?
> There was practically no inflation in the United States during the 19th century
I can't speak to inflation in the 19th century. I'm not an economist and expert like the writer of that article. But as a percentage of household income, basic necessities (food, clothing, transportation, entertainment, energy) have undoubtedly become cheaper since the 19th century, despite inflation. Goods and services that don't follow normal supply-demand logic (education) or have excessive regulation controlling supply (healthcare, real estate) are the exception to this.
> the major exception in that period being the Civil War, a period of when the government needed to generate more revenue by printing more money
Money printing is the proximate cause, but not the root cause. The war increased demand, leading to increased prices i.e. inflation. The government printed more money to pay for the war, but it could alternatively have taken on more debt (and maybe it did, I'm not an economist or a historian).
Value does not come from money. Real value comes from the goods and services actually produced. As for whether profits increase, that depends. An increase in productivity in an industry might not necessarily entail an increase in profits for those in that industry. That's the basis for cartels, restriction production in order to boost profits.
> Goods and services that don't follow normal supply-demand logic (education) or have excessive regulation controlling supply (healthcare, real estate) are the exception to this.
This is not necessarily the case, i.e., services can decline in price as well as output increases. If, for example, the money supply were fixed but there were now twice as many workers, there is half the amount of money to go around for each person (but this is not really a problem because money is only useful as far as it is used to purchase goods and services, and in this scenario there are now twice as many goods and services to go around, so it balances out). So if the money supply were completely fixed, you would expect the price of everything to decline over time. However, historically, before the Federal Reserve, prices were relatively stable over periods as long as a hundred years. This is probably because the money supply was not actually fixed - it was backed by gold, and the more the economy grew, the more gold could be mined.
> The government printed more money to pay for the war, but it could alternatively have taken on more debt
Well, this is precisely how the Federal Reserve system works (at least in theory). It doesn't simply hand the government a blank check (although these days it might as well). It lends money to the government to spend. Actually, the process is slightly more convoluted. The government borrows money by selling bonds, and then bondholders sell those bonds to the Fed.
Regardless, the end result is the same, an influx of created money entering the economy. Other forms of lending plays a central part in money creation, through what's called the money multiplier, and the Fed has traditionally targeted inflation by lowering interest rates, making it cheaper to borrow money, encouraging more borrowing, and thereby increasing the money multiplier. So in any event, the cause of inflation is an expansion of the money supply. The money printer by itself is responsible for only M0, but other actions by the government can grow or shrink the larger money supply (M2).
I didn't say that. I said money measures value. Without money, value is purely subjective.
> Real value comes from the goods and services actually produced
Agreed. And making more money over time is a means of measuring "real value" creation. It's a crude approximation (patent trolls and telemarketers are strictly negative value IMO, and they still make money) but it's the best we have right now.
> An increase in productivity in an industry might not necessarily entail an increase in profits for those in that industry.
True. It can also spark price wars and a race to the bottom, which is great for consumers. However companies are required to make a profit in order to continue to survive. Otherwise they run out of money eventually. This is the current reality of balance sheets and return on capital and quarterly results. Wanting currencies to be deflationary under this reality is like wishing that time runs forward for everyone else while you keep getting younger.
> the money supply was not actually fixed - it was backed by gold
Why does anyone give a shit about gold? Why does it have any value? This whole thing is circular reasoning. "Gold standard currencies are good because they're deflationary. Deflationary currencies are good because they're backed by gold".
> the cause of inflation is an expansion of the money supply
When speaking of inflation, I feel like it's necessary to differentiate between nominal inflation (the number on your grocery receipt goes up) and real inflation (percentage of your income/assets spent at the grocery store goes up). Btw, I'm not an economist so I have no idea if these are real terms. But as a consumer, these are the only things that actually matter to me. I wouldn't care to live in the 19th century, when the price of wheat only increased by 10 cents/bushel decade-over-decade, if I couldn't afford enough food to feed my family.
Moreover, given how different everything in the 19th century was (open immigration, tons free land to settle, tons of newly discovered resources, less competition for everything, less well-developed capital markets, less global trade), I'm skeptical about how useful it is to compare prices of consumer goods back then to now.
Sure the money printer makes all the numbers go up in a scary way. But does it make people poorer in real terms? The answer to that IMO is, "it depends". If the money supply exceeds actual value produced in the economy, it does. If not, it doesn't.
