<p>It could be detrimental but the arguments &amp; mechanism proposed in your question are not generally correct.</p>
<ol>
<li><strong>The Premise of Your Question is Wrong</strong></li>
</ol>
<p>Having a lot of money does not mean that you are rich. So to begin with you cannot make people rich just by giving them money. People get rich by either having high level of consumption, or having high output or having lots of assets. In economics we always focus on expressing income/output, consumption or wealth in real terms (i.e. inflation adjusted). See discussion of this in Mankiw's Principles of Economics pp 482.</p>
<p>I happen to own 10 trillion Zimbabwean dollars (see picture below), so technically I am multi-trillionaire, yet no self respected economist would claim that makes me rich.</p>
<p>Consequently, it is impossible to make everyone rich just by giving them money without doing anything else. If that would be possible then there would be no need for economizing and economics at all. Money is intrinsically worthless paper beyond being easy to turn into napkins/toilet paper/wallpaper. It is the actual real stuff that matters for high income/consumption/wealth.</p>
<p><a href="https://i.sstatic.net/tV1YZm.jpg" rel="noreferrer">1</a>:<a href="https://i.sstatic.net/tV1YZm.jpg" rel="noreferrer"><img src="https://i.sstatic.net/tV1YZm.jpg" alt="enter image description here" /></a></p>
<ol start="2">
<li><strong>Even if We Ignore the False Premise Conclusions are Still Wrong</strong></li>
</ol>
<p>This will not <strong>necessarily</strong> lead to inflation. For example, let us follow simple quantity theory of money (QTM) which is reasonable simplification of more nuanced models of money market equilibrium where inflation is determined. Following Mankiw Macroeconomics pp 102-106, the money market equilibrium is according to the QTM given by:</p>
<p><span class="math-container">$$MV=PY$$</span></p>
<p>where <span class="math-container">$M$</span> is money supply, <span class="math-container">$V$</span> is velocity, <span class="math-container">$P$</span> is price level (positive change of which gives you inflation) and <span class="math-container">$Y$</span> is real output.</p>
<p>Now increasing <span class="math-container">$M$</span> does not necessarily lead to increase in <span class="math-container">$P$</span>. <span class="math-container">$V$</span> could drop if for example everyone would decide to save all theirs one million bucks under their matrasses which would drop velocity of all that new money to zero, which would lower average velocity <span class="math-container">$V$</span> in a way that would completely offset increase in <span class="math-container">$M$</span>.</p>
<p>In addition, in short run increase in money supply and inflation can increase output, if economy is in recession (again see for discussion Mankiw Macroeconomics ch 10-12), so it is not immediately obvious this would lead to <strong>disastrously</strong> high levels of inflation. It would only lead to severe and damaging inflation if you would assume <span class="math-container">$Y$</span> and <span class="math-container">$V$</span> are fixed.</p>
<p>In addition, this is not covered by simple QTM but more nuanced models shows that its expectations that matters. In fact, <a href="http://fpj.portier.free.fr/teaching/m2/Session%20II%20Report.pdf" rel="noreferrer">Krugman (1998)</a> shows in his work that money supply increase that is not expected to be permanent, and it is expected to be reversed soon, may as well not even happen as it would have no impact on prices.</p>

CC BY-SA 4.0
2021-08-20T15:06:27.803Z
Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/128775/discussion-on-answer-by-1muflon1-can-making-everyone-in-a-country-rich-be-detrim).
1muflon1
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2021-08-20T15:56:39.557Z
Hi! I have looked at some data from the World Bank and it suggests that there is actually a negative correlation between the inflation rate (CPI) and nominal GNI per capita. Here are the links to the data: https://data.worldbank.org/indicator/NY.GNP.PCAP.CD and https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG
MathGeek
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2021-08-20T17:09:56.240Z
@MathGeek you are comparing two different things inflation **is a growth variable** whereas nominal GDP is level variable, have a look at just CPI not inflation (which is positive grower of CPI) and nominal GDP or have a look at inflation rate vs nominal **growth of GDP**
1muflon1
CC BY-SA 4.0
2021-08-20T17:12:53.870Z
@MathGeek here you have just wholesale CPI https://data.worldbank.org/indicator/FP.WPI.TOTL
1muflon1
CC BY-SA 4.0
2021-08-20T17:17:57.247Z
I said GNI per capita, not GDP per capita.
MathGeek
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2021-08-20T17:19:34.090Z
And the link is data.worldbank.org/indicator/FP.CPI.TOTL.ZG, not  data.worldbank.org/indicator/FP.WPI.TOTL.
MathGeek
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2021-08-20T17:20:29.380Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/128780/discussion-between-mathgeek-and-1muflon1).
MathGeek
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2021-08-18T20:42:37.253Z
2021-08-18T21:14:54.720Z
2021-08-18T21:14:54.720Z
1muflon1
<p>Let's say that everyone in the nation of Tigerville is given US$1,000,000. People would want to buy more goods since they have become considerably more wealthy. However, the sellers of the goods may increase the prices to decrease the number of customers. This will lead to inflation, which in excess can be detrimental to the economy.</p>
<p>Is this correct?</p>

CC BY-SA 4.0
2021-08-18T19:42:14.850Z
I think there'd certainly be some interesting distributional effects at t+h (where h is some period in the future). For example, at t, there'd be a $1m transfer. But supply is predominantly inelastic in the short-run and wouldn't match demand for many goods. Therefore, there'd be shortages in t+1 that would drive up prices. The 1m cash would be worth less for some than at would be for others who purchased at t and now hold some type of saleable good or asset with greater real value. And on the latter note - yes, unconstrained inflation is very bad for an economy.
EB3112
CC BY-SA 4.0
2021-08-19T16:13:56.257Z
It can cause the population of Tigerville to become lazy and spend their money on yachts and ponies instead of factories and education... until there's suddenly no money left and nothing they know how to produce.
Criticize SE actions means ban
<inflation>
Can making everyone in a country rich be detrimental to the economy?
MathGeek
# Can making everyone in a country rich be detrimental to the economy?

(Asked by: username_0 on 2021-08-18)

Let's say that everyone in the nation of Tigerville is given US$1,000,000. People would want to buy more goods since they have become considerably more wealthy. However, the sellers of the goods may increase the prices to decrease the number of customers. This will lead to inflation, which in excess can be detrimental to the economy.

Is this correct?

**Tags:** inflation

> **Comments:**
> **username_1**: I think there'd certainly be some interesting distributional effects at t+h (where h is some period in the future). For example, at t, there'd be a $1m transfer. But supply is predominantly inelastic in the short-run and wouldn't match demand for many goods. Therefore, there'd be shortages in t+1 that would drive up prices. The 1m cash would be worth less for some than at would be for others who purchased at t and now hold some type of saleable good or asset with greater real value. And on the latter note - yes, unconstrained inflation is very bad for an economy.  
> **username_2**: It can cause the population of Tigerville to become lazy and spend their money on yachts and ponies instead of factories and education... until there's suddenly no money left and nothing they know how to produce.  

---

## 1 answers

### Answer by username_3 on 2021-08-18. Score: 5 | Accepted answer

It could be detrimental but the arguments & mechanism proposed in your question are not generally correct.

1. **The Premise of Your Question is Wrong**

Having a lot of money does not mean that you are rich. So to begin with you cannot make people rich just by giving them money. People get rich by either having high level of consumption, or having high output or having lots of assets. In economics we always focus on expressing income/output, consumption or wealth in real terms (i.e. inflation adjusted). See discussion of this in Mankiw's Principles of Economics pp 482.

I happen to own 10 trillion Zimbabwean dollars (see picture below), so technically I am multi-trillionaire, yet no self respected economist would claim that makes me rich.

Consequently, it is impossible to make everyone rich just by giving them money without doing anything else. If that would be possible then there would be no need for economizing and economics at all. Money is intrinsically worthless paper beyond being easy to turn into napkins/toilet paper/wallpaper. It is the actual real stuff that matters for high income/consumption/wealth.

[1](https://i.sstatic.net/tV1YZm.jpg):[![enter image description here](https://i.sstatic.net/tV1YZm.jpg)](https://i.sstatic.net/tV1YZm.jpg)

2. **Even if We Ignore the False Premise Conclusions are Still Wrong**

This will not **necessarily** lead to inflation. For example, let us follow simple quantity theory of money (QTM) which is reasonable simplification of more nuanced models of money market equilibrium where inflation is determined. Following Mankiw Macroeconomics pp 102-106, the money market equilibrium is according to the QTM given by:

$$MV=PY$$

where $M$ is money supply, $V$ is velocity, $P$ is price level (positive change of which gives you inflation) and $Y$ is real output.

Now increasing $M$ does not necessarily lead to increase in $P$. $V$ could drop if for example everyone would decide to save all theirs one million bucks under their matrasses which would drop velocity of all that new money to zero, which would lower average velocity $V$ in a way that would completely offset increase in $M$.

In addition, in short run increase in money supply and inflation can increase output, if economy is in recession (again see for discussion Mankiw Macroeconomics ch 10-12), so it is not immediately obvious this would lead to **disastrously** high levels of inflation. It would only lead to severe and damaging inflation if you would assume $Y$ and $V$ are fixed.

In addition, this is not covered by simple QTM but more nuanced models shows that its expectations that matters. In fact, [Krugman (1998)](http://fpj.portier.free.fr/teaching/m2/Session%20II%20Report.pdf) shows in his work that money supply increase that is not expected to be permanent, and it is expected to be reversed soon, may as well not even happen as it would have no impact on prices.

> **Comments:**
> **username_3**: Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/128775/discussion-on-answer-by-username_3-can-making-everyone-in-a-country-rich-be-detrim).  
> **username_0**: Hi! I have looked at some data from the World Bank and it suggests that there is actually a negative correlation between the inflation rate (CPI) and nominal GNI per capita. Here are the links to the data: https://data.worldbank.org/indicator/NY.GNP.PCAP.CD and https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG  
> **username_3**: @username_0 you are comparing two different things inflation **is a growth variable** whereas nominal GDP is level variable, have a look at just CPI not inflation (which is positive grower of CPI) and nominal GDP or have a look at inflation rate vs nominal **growth of GDP**  
> **username_3**: @username_0 here you have just wholesale CPI https://data.worldbank.org/indicator/FP.WPI.TOTL  
> **username_0**: I said GNI per capita, not GDP per capita.  
> **username_0**: And the link is data.worldbank.org/indicator/FP.CPI.TOTL.ZG, not  data.worldbank.org/indicator/FP.WPI.TOTL.  
> **username_0**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/128780/discussion-between-username_0-and-username_3).  

---

