How does money gain value? Why would £100 from 100 years ago be worth more now?
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It doesn’t gain value, it loses value. I believe what you’re talking about is when you see something that says that something cost some amount 100 years ago and, in parenthesis, it says how much that would cost now. For example: £100 in 1922 (£1,000 today).
They aren’t saying that 100 1922 pounds are *worth* 1,000 2022 pounds. They’re saying that £1,000 *today* could buy as much stuff as £100 could 100 years ago. The value of money *lost* value because of inflation.
It doesn’t. I’m assuming you’re thinking of statements like “this thing was worth X dollars in 1850, the equivalent of Y in today’s dollars”
This is to account for inflation. Think back to when you were a kid, and $5 could buy almost anything, but now you’ve very little change after buying a bottle of Coke and a Snickers…
Inflation devalues currency over time, and so when comparing value across time, it’s common to adjust for inflation as in the example above. It’s not that a $100 bill from 1920 is more valuable now, it’s that if you had $100 in 1920, that was worth more than you having $100 today
Old money can gain Numismatic value, so a rare edition of a coin or banknote can be worth more because it is rare.
In the general sense, central banks strive for about 2% inflation. Over time your money buys less.
Money has time value. Given the choice, would you prefer $100 now of $100 in two years? You’d probably prefer right now.
Ok, what if the choice is $100 now or $200 in two years? Then it becomes more complicated, but there are many people who’d take the latter over the former.
If you time traveled back to 100 years ago, you could rent an apartment in London for a month for £100.
When you come back to the current time, you will not be able to rent an apartment in London for £100/mo anymore, because things have gotten more expensive.
Your money did not change at all. The costs of everything around you changed.
Over time, money loses buying power due to inflation…
But if you’re talking about money in the bank or invested, savings accounts pay interest. This is payment for use of the money. When you deposit money into a bank, that allows the bank to turnaround and make loans with it. They may charge 5% on a home mortgage and pay depositors 2% on their savings — the 3% spread is the banks operating income.
But your money also compounds. They pay 2% on your $100 this year, but next year they pay you 2% on $102. And the next year on $104.04… after a while, the year to year jumps are bigger relative to the original amount.
Inflation. Back 100 years ago, you could buy a loaf of bread for a few cents, where as now it costs a few dollars. The money loses value over time. Inflation rates are usually kept around 2% in ideal conditions.
There are a few reasons that inflation is intentional.
1. It discourages people from hoarding money. If all that money sitting in your bank account is losing value, then it would be better to spend it on physical things because in 10 years it will be able to purchase less of that same stuff. It also encourages investment, to try and grow that saved money faster than inflation devalues it.
2. It keeps economic growth going. In addition to encouraging investment, it also means theresna larger pool of money that is in circulation, meaning there’s more money for people to earn.
3. It encourages loans, because even though you have to pay back the interest, the money you are paying back with is worth less than the money you took out in the first place.
There are probably more that I can’t think of at the moment, but this is also a system that will likely collapse once population growth stops or we run out of some finite resource.
Everyone’s answering the question you didn’t ask. I’ll answer the one you did ask.
For money to gain value it would have to become more rare or more demanded.
So you could either keep the same amount of money and increase the number of people who want it and things they want it for, or you would reduce the amount of available money and keep everything else the same.
The US, for example, just tripled the amount of dollars available … which makes a dollar worth about a third of what it was worth before. (Or it will soon enough).
To make it more valuable – as you might like – you would do the opposite. You would “burn” two thirds of the available money instead, making it thrice as valuable.
Why don’t governments do this? Because if the value of money is going up, it makes more sense to save it, not spend it. If your $1,000 buys you one iPhone today but will buy you three iPhones next year… maybe you’d rather wait.
But then if everybody waits, Apple won’t make the iPhones in the first place cos no-one’s buying them. So then no-one has a job at Apple any more cos they have nothing to do. Spread this around the whole economy and no-one’s earning any money, and there’s nothing to buy.
Well then, if there’s nothing to buy, does money really have much value any more? What use is a million dollars if you’re in a desert with no shops nearby?
So, in your effort to make the money gain value, you’ve actually made it less useful… and thus less valuable. Woops!
So really the way to make money more valuable is to make it so it can do more stuff. Like Money MkII.
This is where cryptocurrency comes in.
Bitcoin has fallen into the trap of becoming useless because no-one wants to *use* it, and instead everyone wants to just hold onto it until it’s “more valuable”. Which will probably kill Bitcoin at some point.
Other cryptos (specifically “cryptocurrencies” which not all cryptos are) are in the Money MkII category and are trying to become more valuable by becoming more useful.
For example, imagine a money that tracked all your spending, did your accounts for you and paid your taxes with one click at the end of the year. Would you rather use that one than those troublesome dollars? If you would, then that crypto just went up in value for you.
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