How does monetary value change over time? From something worth $$$ in the early years to $$$$$ in today’s time.

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How does monetary value change over time? From something worth $$$ in the early years to $$$$$ in today’s time.

In: Economics

The value of money is (like everything) depending on the supply and demand.

As money slowly gets more (wich is done on purpose) it must become less valuable because the amount of goods stays the same (or grows slower than the amount of money).

Why do we cause this inflation on purpose by printing money you may ask?

Well because the alternative is much worse. A solid currency has historically caused a lot of trouble because if supply doesn’t catch up with demand for money then it’s value increases (deflation). And then suddenly it’s a good investment to park your money in a safe (so even more deflation because the amount of money in circulation decreases). If noone invests their money then the economy comes to a grinding halt.

We are constantly creating more money, which makes the money we have less valuable.

Imagine a school yard game where you trade beads for cookies. If there are only a few beads out there, you might trade your cookie for one. But if the teacher dumps a 5lb jar of beads on the desk, suddenly beads aren’t so valuable and you might only be willing to trade your cookie for 50 beads.

Your teacher used “quantitative easing” to devalue beads. She did this because one of the parents complained that it wasn’t fair that her kid ran out of beads. She didn’t really have a choice because that parent makes no secret about the fact that they’re gang-connected.

So what can you do? Spend every bead you have, I guess, because you know they will be worth less tomorrow. But cookies are the only thing you can spend them on. So I guess cookies are worth a thousand beads now… at least until everybody realizes that the only reason cookies look so good is because beads look so crappy now.

Cookies are the stock market in this story. And you are screwed no matter what because the world is run by gangsters.

There are basically 3 factors.

First, the intrinsinc value could have increased. That would be the case for stocks in a company that grew and became bigger and more profitable.

Second, the extrinsinc value could have increased. This value is the “unreasonable” value, based on scarcity, feeling, that kind of thing.

Third, inflation. If both intrinsec and extrinsec values stayed the same, the value of the money itself could have been lost. This happens every time more money is created when the underlying value does not change or goes lower, which is what every country in the world has been doing a lot since COVID (and was already doing prior, but to a lesser extent)

This is why cryptocurrencies are seen as having their value increasing: they dont really, but compared to regular currencies, called fiat, they have an interesting property: no one has control, so no one can decide to print a bunch of money whenever they want.