How does more money get into circulation?

So in the above explanations, when more money is available to be lent by banks, inflation occurs. I see that people who borrow have more money to spend, hence, prices increase. But in places where the amount of actual printed money in circulation was greatly increased, say, Germany after the war, or revolutionary America in the 1780’s, how did individuals actually get that money? How did the economy actually get “flooded” by the currency that was worth so little? I mean, no one just put out some tubs of money and said, “Here, have some.”

By trickling down via new jobs, wage increase and returns on investments.

The idea is that the new money will drive an increase in economic output.

Eventually :smiley:

I don’t understand this narrow focus on loans.

It does not have to be loans, as I mentioned in my first post.

Banks don’t have to make loans to get money in people’s hands. They can buy assets like securities instead. If they’re buying assets, then someone is selling those assets. That someone now has money to spend. And they will, of course, spend it. Nobody sits on a fat stack in that situation. People aren’t stupid. Ordinary money is a poor store of value if central banks are pursuing a deliberately inflationary policy. The money will move, just as it always has in the past.

The colonial era in the US did not have central banks so it was a little different. Colonial governments, and eventually the Continental Congress, contracted with printers directly in order to issue currency. Money got into circulation directly with government spending: the various governments would buy goods and service with printed notes, and they got people to accept that paper with the promise that the paper could be used to pay taxes at the same value that precious metal coins were worth. This provided a benchmark value for the paper, since a paper banknote of one silver dollar would be accepted for taxes just as readily as an actual silver coin.

The modern equivalent, e.g. Weimar Germany, would be government deficit spending financed by the central bank. The government spends more than it taxes, thereby creating government bonds, and the central bank can then immediately buy those bonds with newly created cash (either directly, or through an intermediary). The debt does not circulate since it’s in the hands of the central bank. Only the newly created money circulates, with the whole process started by government spending. The economy gets “flooded” because people want payment from the government, and in a hyperinflationary case, people demand bigger and bigger and bigger payments.

Banks aren’t generally in the business of buying assets unless you’re talking about investment banks. However until money enters the fractional reserve banking system there is no mechanism by which it can be multiplied and therefore no mechanism for inflation.