I understand why inflation currently happens. The price of gas goes up, so the cost of transporting goods goes up, so the cost of production goes up, etc etc. I can wrap my head around that. But how did it start? What was the first thing to go up in cost, creating this chain reaction? Could it have been avoided if the initial thing did not rise in cost?
In: Economics
Inflation, in a simplified sense, has two causes, either more “money” or less products. In older economies (think Ancient Rome or even middle ages) not many people actually used money in daily transactions so it didn’t affect the economy so much.
If money is tied to gold (think gold coins) you can’t really print money out of thin air, sure, some new gold may be mined but that is slow and laborious and sources of gold are already known about and their productivity is kind of stable, you can’t really make gold out of thin air, can you?
Nonetheless, inflation did happen even when money was tied to gold. When Spain (more like kingdom of Castile) reached the New World they discovered a lot of gold, which they then used to mint new money, and this had the exact result you would have expected, inflation in an age where people didn’t really knew about it or how it works.
For the other example where the quantity of money stays constant but products are less I can’t really think of an example, but for example, when the Roman Empire fell (it wasn’t a singular event but more like a long process punctuated with major events, but that’s another discussion) people stopped using money less and less, basically making it become less valuable. Without the economic transactions that the stability of the empire brought coins where less important than being friends with you neighbours in the village or being able to bring together several armed men.
For a more theoretical example, we can have inflation even without money. If caveman Grogg sells a fox pelt to three other cavemen for a fish each, but tomorrow Grogg only catches one fox and one of the buyers offers two fishes to guarantee he gets the pelt, then now we have all the required components for inflation, don’t we’ll?
Short version; inflation and deflation exist whenever money exists. It may have different causes or different manifestations and in some way doesn’t even require money, just transactions.
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