Will an excess of money in the US economy hurt domestic manufacturing?
The idea has some merit.
A series of record spending bills keep coming down the pipe. Ones that have trained manufacturers to chase funding dollars instead of improving their core products.
And it’s messing up the market. Especially one that’s pivoting to bring manufacturing back stateside.
Instead, we were supposed to see additional capacity. Room to produce and higher demand for goods to restore balance.
Just so long as the amount of money circulating doesn’t drive up prices, right?
But is that a problem with monetary policy or an inability to innovate and produce things that add value?
Because if the money supply and production rise along with each other, the system is working at its best. That’s critical if we want the coming manufacturing renaissance to take off.
Stick around. We’ll explore both sides of this equation.
Coin’s Financial School
We’ve established excess money in an economy can raise prices. But US history gives us a lower boundary to this idea.
You see, at the end of the nineteenth century, the US was facing the opposite dilemma. Hard asset money didn’t flow as fast as it should for the economy to move. So much so we were considering a bailout from England to kickstart the economy.
But Coin, a young financier from Chicago, had the answer.
The problem was big bankers preferring the gold standard. Coin showed them how incorporating silver would solve the liquidity crisis.
To avoid groveling to England, we grew the money supply.
When there was enough money to flow, the people who needed it used it to expand and fill bigger orders.
What if we didn’t?
If you haven’t noticed, having money readily available improved our standard of living.
Think about what would have to happen to keep up the level of productivity without enough currency to pay all the bills.
Because you want to be paid for what you sell. Your employees want to be paid for making the products. And your suppliers want to be paid for selling you the materials.
You could do it with promissory notes. But guess what? You’re back to a system of faith and credit.
Not to mention a litigious system in which everyone is trying to be made whole while defending themselves from everyone else.
Imagine everyone being responsible for all of that all the time. While dealing with thousands to millions of people on each level.
Maybe smart contracts and the blockchain will some day resolve that zero trust environment. In the meantime, how do you have time to make stuff in that system?
So, if we want to hold up innovation as the standard for improving our quality of life, we need to acknowledge a lower limit of money supply to entice people to innovate.
Because a lot of expanded offerings come from money flowing freely between parties.
What does this mean for manufacturing?
Let’s face things as they are right now.
If we’re stuck with an elevated money supply, how can this still be positive for manufacturing? And in an economy with rising prices?
It’s this: we have found more ways to serve more needs than years past. That makes more ways for people to create value.
And with the steady increase in durable goods orders, manufacturers are responding to fill the demand.
But there’s a problem we’re still living with from the last 5 years: more money to chase goods than there are goods to go around. Which drove up prices.
People don’t like paying more for stuff. But outcome only holds if money supply goes up and production remains constant.
There’s a couple ways past this: either let both sides of this equation settle out in a prolonged uncomfortable situation that doesn’t get better for years…
OR…
We innovate spontaneously to resolve lots of constraints and improve productivity.
If you’ve been reading my blog for any amount of time, you know I favor innovation.
That’s what increases availability while differentiating to lower prices or value add.
It doesn’t have to be bailing out too-big-to-fail manufacturing monopolies to keep our 401(k)s afloat.
Motivated individuals can enter this space, learn a lot in a short time, and get busy making stuff.
Which way out?
So now with the challenge before you, what will you do? And what do you need to be to make the most of this opportunity?
Because the people who find out how to produce more things of value during this time will be better off than those who only work to curtail money supply.
What can you produce?
Start with something you wish you had or a problem you wish you didn’t. Then test ways to solve it and practice solving it for other people.
And at the end of the day, you may just have a manufacturing solution.
There are also people, like me, who have worked in manufacturing for years and want to share expertise with the next generation.
So if you need a guide to help you add value in manufacturing, book a call with me today.
Together, we can out-innovate any problem from excess currency.
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