I do not understand how inflation works if my life depended on it. I understand that it’s an occurrence when you have something in excess amount (like money), thus it becomes worth less.
But why does it become worth less when we give money value? Could we not assign the same value to the same things we have in an excessive amount? Is inflation a law of sorts?
It’s so confusing to me.
In: Economics
“we give money value” doesn’t mean that we decide “money will have x value”. It means that we as a society follow the “rule” that we accept money as payment, meaning that I’m willing to give you my actual product or service (eg hamburger) for your money, because I know someone else is willing to give me beer for that money. Money is a tool that replaces “x for y” trades which are impractical (I have a, want b, you have b, want c, he has c, wants d, she has d, wants a – easy solution, but impractical in real life). Instead of trading 2 burgers for beer, I sell 2 burgers and buy beer. The value are the products and services. If you double the amount of money everyone has, it’s still 2 burgers for a beer. People would want to buy 2 times more things, even though there aren’t 2 times things. And so, sellers would raise price (since they have more customers than product, meaning they don’t care about losing the extra customers). And then all prices rise to a point that they become stable again. If in the past burgers cost 2$, but now people have 2x money, they’ll cost 4 dollars.
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