If Nobody Could Print Money What life might look like if money couldn't be created out of thin air

The flat-screen clue

If you bought a 42-inch flat screen in the early 2000s, you probably paid around $3,000 and carried it into the house like a newborn. Today a very good 85-inch 4K TV costs under $1,000. That's about four times the screen for a third of the price.

People didn't stop buying TVs. The world still buys around 200 million a year. They just got much cheaper to make. Factories now cut glass sheets bigger than a garage door and slice them into TVs, and new factories in China flooded the market.

Here's the part that matters. TVs got cheaper even while new dollars were being added every year. TV-making improved fast enough to outrun inflation. A haircut, a nurse's shift, or a teacher's class can't speed up like that, so for most of what you pay for, inflation wins.

So what if nobody could add new dollars at all?

Welcome to Fixedland

Picture a country with one rule: the amount of money stays about the same. It might grow 1% a year at most, a bit slower than gold (new mining adds about 1 to 2% a year), and nobody can speed it up.

In Part 1, banks created new money every time they made a loan. In Fixedland they can't. A bank can only lend out money that someone actually saved.

Everything else stays the same. People still invent things and get better at their jobs, and the economy still grows about 2% a year. More stuff, same amount of money. So prices slowly drift down, and every dollar buys a little more.

After 30 years, a $100 cart costs about $55. In real life wages would probably drift down a little too, but a paycheck would still buy more each year. That sounds like a fairy tale. It isn't free, though.

The good

Savers win, and paychecks stretch further.

• Savers win by sitting still. Cash gains value every year instead of losing it. Retirees on a fixed income get a little richer, not poorer.
• Your raise is real. When prices drift down, a raise is a true raise, not just catching up.
• Nobody gets the new money first. In Part 1, new money reached banks and owners first. In Fixedland there's none to hand out, so nobody gets a head start.

The bad

Anyone who owes money pays for it.

• Debt gets heavier. Your balance stays the same, but if wages drift down, it takes more of your work to pay off. Think credit cards: the balance doesn't shrink, but your paycheck might. Farmers felt this so badly in the 1890s that it became a presidential campaign.
• Most people won't take a pay cut. Even if prices fall 3%, a 3% pay cut feels like an insult. So companies tend to lay people off instead.
• Cheaper houses, harder loans. Houses would likely cost less compared with paychecks, but banks can only lend real savings, so you'd need a bigger down payment.
• Getting there would hurt. The U.S. owes over $40 trillion. With no new money, it would have to raise taxes hard, cut programs like Social Security and Medicare, or not pay some of it back. There's no gentle way to switch.

The really bad

A panic with no brakes.

This is the part that gets skipped most often: a spiral where falling prices feed on themselves.

Picture COVID in Fixedland. No relief checks unless they're paid for with taxes or real savings, right when everyone is scared and nobody is spending.

The really good

Every invention makes life cheaper for everyone.

Jeff Booth argues this is where technology wants to take us. Every gain shows up as lower prices for everyone, instead of higher stock prices for people who already own things. The 85-inch TV effect would spread to food, energy, clothes, and eventually anything a machine can make.

It's not just a theory. It has happened before.

Two times prices fell

Economists call falling prices "deflation." America has lived through it twice. Same symptom, two very different endings.

1. 1873 to 1896

   Prices fall for over 20 years, and the country booms

   Railroads cross the country, steel gets cheap, the telephone arrives. Over the whole stretch, real wages rise. It isn't smooth: there are bank panics in 1873 and 1893.

2. 1907

   Another bank panic

   Bad enough that Congress creates the Federal Reserve in 1913 to stop the next one.

3. 1929 to 1933

   Prices fall about 25%, and the country breaks

   One in four workers is out of a job. About 9,000 banks fail. The Fed exists by now, and many economists blame its mistakes as much as the gold standard.

4. 1931 and 1933

   Britain, then the U.S., leave gold

   They're among the first to climb out of the worst of it. In 1933 Congress creates the FDIC, and from 1934 on, a bank failure no longer wipes out your savings.