[all2well]

How do you explain the situation in Japan? Their money supply has grown steadily over the last couple decades, yet they've seen basically no inflation.

See: https://tradingeconomics.com/japan/money-supply-m2

and: https://tradingeconomics.com/japan/inflation-cpi

[Retric]

The normal explanation is money is a lubricant for the economy, as the economy grows so must the money supply or you get deflation. On top of that some percentage of physical money is lost or destroyed every year. Picture what would have happened if the exact number of bills in 1922 where in use in 2022.

That said there are a lot of different short vs long term effects.

[nradov]

In calculating the effective size of the money supply you have to factor in loans marked to market. In a fractional reserve lending system, when a borrower defaults money is essentially destroyed. A lot of loans in Japan are still being held on the books at face value. The fact that there has been no inflation is evidence that many loans will eventually default.

[WalterBright]

Inflation is the increase in the money in excess of the value of goods and services the money represents.

[notahacker]

Except that Japan is famously also experienced very low economic growth (plus the same recessions everyone else experienced) over the last two decades. Its money supply doubled though...