17th September 2026
Does creating more money cause inflation? We are repeatedly told that “money printing” inevitably pushes prices higher. But that claim misunderstands both how modern money works and what actually causes inflation.
Governments create money when they spend. Commercial banks create money when they lend. Both processes happen every working day. If creating money automatically caused inflation, modern economies would be permanently experiencing rapidly rising prices. They aren’t.
In this video, I explain where money actually comes from, why government spending is not inherently inflationary, and why hundreds of billions of pounds of quantitative easing did not produce the inflation its critics predicted.
The crucial constraint on government spending is not money. It is the availability of real resources: people, skills, energy, materials, technology and productive capacity.
Inflation can occur when demand exceeds the economy’s ability to supply what people want to buy. But much of the inflation experienced in the UK in recent years has instead resulted from external shocks, including energy shortages, war and disruption following Covid.
I also look at sterling, Brexit, the financial crisis and Liz Truss to explain why exchange rates cannot simply be understood by looking at the amount of money being created.
Understanding inflation requires understanding the real economy. Money is only part of the story.
00:00 Does More Money Cause Inflation?
01:02 How Money Is Really Created
02:13 Government Spending Creates Money
03:24 Why QE Did Not Cause Inflation
04:35 How Commercial Banks Create Money
05:44 What Actually Causes Inflation?
06:52 External Shocks and Rising Prices
08:03 When Spending Really Can Cause Inflation
09:13 Why Spare Capacity Matters
10:19 Investment Can Reduce Inflation
11:21 Does Money Creation Crash the Pound?
12:29 What Really Moves Sterling?
13:32 The Real Constraints on the Economy
14:23 Money Is Not the Problem