Why do our governments through the institution of the central bank continue to increase the money supply?
To start with, it’s the fact that most countries in the world increased the money supply for years.Then if we regard the money as a common good, the supply side of it is government and the demand side of it is us. We need money as a medium of exchange, a unit of account and a store of value.
In order to find the reason behind the continuously increased money supply and who on earth benefit from it, several questions need to be clarified.
1.
What is money supply? And how does the government through the institution of the central bank increase it?
2.
Is this increased money supply good for us, the public?
3.
Is this increased money supply good for the government?

1. Firstly, money supply is the total amount of money available in an economy at a particular point in time. [1]
And according to the quantity theory of money, which was first developed by Irving Fisher in the inter-war years with the formula:

M*V = P*Q

Where: M is the money supply; V is the velocity of money in final expenditures;

P is the price level; Q is an index of the real value of final expenditure.

We assume the V and Q are constant in a period of time; an increased money supply will cause inflation. Mild inflation exists in most countries for years according to Table2.

Next, Government controls the money supply by monetary policy: cut the interest rate or reserve ratio, or simply “print” it. But the government doesn’t literally print money. It would be more precise to say that the Fed is creating money by purchase corporate or government bonds in the open market.
Actually, the amount of money “printed” is up to the demand side of the money — us.
Not until we decide to borrow more money from the bank; the banks order more money from the Fed in turn, there would be no money created in the Fed’s account. [2]

2. Is this increased money supply good for us?
If we look back at the history of the money, before the government controls the money supply, there was once the gold standard monetary system, in which a region’s paper notes are freely convertible into pre-set, fixed quantities of gold. However, it was abandoned and all nations had switched to full fiat money system since during the World War I governments faced the need to fund the war but under the gold standard the amount of money is not enough. [3]
I think the collapse of the gold standard is inevitable since we need extra money to cover the extra products we produced; we know the economy grows hugely so the increased money supply is very natural.
But when the money supply exceeds the whole value of the product, the price level will increase. The problem of the inflation is that our money is continuously depreciated. Thus the inflation is really a bad thing for the public, why can’t the government just avoid the inflation?

3.
Is this increased money supply good for the government?
I think they could provide a convincible reason for the inflation — the deflation is just even much worse based on what happened in the United States during 1930s which took it more than 10 years to recover. [4] Imagine if you know your savings will appreciate in the future; would you going to spend it now? Thus there would be huge decline on consumption and investment.
Furthermore, since it’s so hard to measure what’s the optimal level of money supply (we can’t decide how quickly people spend it — the velocity of money), keeping a slightly low inflation rate seems reasonable.
However, the government does have every reason to increase money supply, because unlike the supplier of milk or car, there is nearly no cost but huge profit by doing so. They are basically creating money from nothing. The government can lend you money when they don’t have any; they just create! And they earn huge interest form it.

Although the money supply in the economy is decided by the people who borrow money from the bank, the government has the power to control it, and only they can.
So every time when the government encouraging us to borrow money to consume (even more than the country produced like what happened in the United States), we should think about it whether it’s good for the economy or just for their own interest.
So think about it, even when the increased rate of our wages can keep pace with the inflation to make sure our living standard keep the same, how much interest the extra money lend by the government that causes the inflation will bring about? Remember the government is just an organization that ran by a group of self-interested people.

In conclusion, the increased money supply is good for the economy to cover the increased traded goods to avoid deflation. But if the government only cares about their interest, the power to increase the money supply would be destructive.
小作业一篇，欢迎大家给出意见~