Eli5 If the amount of currency stayed the same and the population increases wouldn’t it reverse inflation?
In: Economics
Population not so much, but economy yes. Economy is somewhat linked to population, but is also obviously linked to other factors like technology, recourses, political stability, and trade.
But yes, you are absolutely correct. If no more money was “printed”, the same amount of money would represent more economic wealth. Hence, the money is worth more. If there’s 100 dollar for the whole economic pie, and the pie just got bigger, each 1 dollar slice is now worth more pie. That’s great, right?
No, it’s actually bad. This is called deflation. Deflation isn’t some good opposite to evil inflation. It’s can bad, it can very bad if it’s strong. In fact, the mild inflation the world sees right now is intentional. The governments actually print slightly more new money than there is economic growth. Why? Because it encourages spending and investment as hoarding money slowly losses wealth.
Deflation encourages people to hoard money, like a dragon with a cave of gold. As you can imagine, gold in a cave isn’t very useful to anyone. If the money is worth more in the future, why would you spend or invest any of it? This is of course horrible for the economy and society. Loans stops, investment stops, spending stop. This of course crashes the economy as nothing is happening. The same amount of money is still there, but it’s not moving so nothing is happening. This of course soon means the economy is shrinking, so there’s even less resources but the same amount of money. This clearly goes right back to inflation as the economy stalled and shrank rather than grew.
Ultimately, money is meaningless. It’s just a placeholder for resources. It doesn’t matter if a Japanese yen is worth 100x less than an American dollar, it’s all just placeholders. It doesn’t in any way mean American is richer or better off or has a stronger economy than japan by 100x. What matters is the economy itself. How much resources there are, how well they are being exchanged, and how much it grows. So the goal is whatever inflation, deflation, or neither that works for the strongest economy. And through current economic theory and historical results, steady, reliable mild inflation is the best bet. It’s very intentional, not some accidental issue that inflation is occurring.
And of course by “printed” I don’t necessarily mean literally printed. Some money is minted, and a lot now is digital. In the old days, the rate of growth of money was determined mostly by how much new gold and silver was discovered and mined. It’s rarity kept it as a steady currency growing more or less in check with the overall economy, and small size and high value as a nice placeholder for bartering that can be carried in a purse or wallet. Now this is all artificial, with well established and wide reaching governments being able to control the rates of new currency.
Governments before modern times had dealt with paper currencies or attempts to control currency outside of raw good and silver. The paper currencies often failed however, which then only being as reliable as the power of a feudal empires stability. And rampant inflation of coinage also occured as governments (like say the Romans which was far reaching enough to attempt control) debased the coins (put cheaper metals in), but their failed understanding of economic theories often spiraled things out of control. Turns out cheaping out on the coins based on the value of metal and attempting to fix prices doesn’t actually work, and the black/grey market will just default to supply and demand depsite whatever the king or emperor wishes. Turns out you can’t dictate more resources into existence with wishful thinking.
You can reverse inflation. It’s called deflation, and is a symptom of incredibly hard economic times, so we try to avoid it. It is possible, though is mostly based on the transfer of goods and services rather than the direct size of population.
Population doesn’t matter as much as other factors
https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp
Goods and services being the major thing.
Inflation is not related to population. It’s only related to the amount of money, and the amount of value (of property, goods, etc)
Latest Answers