If a low inflation is considered the best situaion free market wise, how does economic theory solve the problem with ever devaluing money? Wouldn’t it make more sense to bind prices?

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Anonymous 0 Comments

Devaluing money is the point. It encourages you to spend and invest it instead of hording it. That cash flow keeps things healthy.

Anonymous 0 Comments

Money is neutral in the long run.

That means the _absolute_ price level doesn’t impact economic decisions. _Relative_ prices absolutely do, and changes in the price level can. But the overall level isn’t that important: There’s no difference between eggs priced at $0.10 a dozen when wages are $1 an hour and eggs priced at $10 a dozen when wages are $100 an hour. The real cost of 1/10 of an hour of work for a dozen eggs is what’s important.

There are real-world examples of this: You know the Japanese yen? Worth about 2/3 of an American penny. Just like the cent is a subdivision of the US dollar, the yen used to be subdivided into 100 _sen_ or 1,000 _rin._ The fact that the yen had been devalued so much that it not only lost its subdivisions but became trivial in value itself has not caused harm to the Japanese economy. In fact, the problems Japan has seen have been more due to the fact that the price level _isn’t rising rapidly enough, or even deflating,_ rather than the overall price level being too high. The fact that the number of yen in the average monthly wage in 2024 would have represented a measurable percentage of the number of yen in Japan’s gdp in 1880 has exactly zero impact on anything.

Anonymous 0 Comments

Price controls have a long history. A bad history. They cause shortages. Why? At the control price point, there are more buyers that want to buy the product than there are sellers who will sell the product at that price. So some of the buyers don’t get any.