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By defining the dollar’s value solely on trust in the government, a new economic paradigm emerged. As the government printed more money to stimulate the economy, its value relative to goods and services diminished. It was akin to issuing more brownie certificates without corresponding brownies, leading the public to ultimately receive less value for their currency.
A Stark Contrast: Money Supply Versus Population Growth
To highlight the effects of inflation, consider the M2 money supply, which reflects every dollar circulating within the economy. Since 1981, the M2 money supply skyrocketed from $1.6 trillion to over $21 trillion. Meanwhile, during the same period, the U.S. population only grew from approximately 240 million to about 341 million, representing a mere 42% increase.