How does money gain value? Why would £100 from 100 years ago be worth more now?
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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.
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