Asking this question from an American perspective. At an average of 2% inflation, an equivalent new car that costs $40,000 today would cost $2,000,000 in 200 years. Assuming matching(ish) wage growth (i.e. a household of two married professionals could still afford a $2M car), what are the government’s options? Let things ride? Print new $1,000 or $10,000 bills? Reissue a *NEW* USD that is worth 0.01% of the old one?
Still on the fence about if humanity will be around long enough to have this problem, but just curious about the options for my great-great-great-great-great-grandkids.
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You could argue that the prices of everything TODAY are astronomically high. Someone from 200 years ago certainly would. We will just print bills at larger denominations to cover this and cancel lower value ones. Plenty of countries have currency with a value that is a small fraction of a USD.
A little bit of inflation encourages economic growth. If you had a currency that didn’t inflate at all, then people could just hoard it and not use it. But because the value of that hoard will gradually shrink, it encourages people to invest it in things that will grow in value like businesses or property or what have you.
Maybe. Currencies are often ‘reset’ so that the numbers aren’t as big. This is fairly common, 25 countries have done it in that last 20 years: https://en.wikipedia.org/wiki/Redenomination#List_of_currency_redenominations
The other option is that smaller denominations are removed. For example Japan had a 1 sen coin (1/100 of a yen) until 1945. Sen are no longer used and everything is priced in Yen. Canada got rid of the penny in 2013, but they are still legal tender. USA got rid of the half penny in 1857.
As cash and coins are used less, the actually numbers matter less.
Around a camp fire in 1988, my dad and I talked about the cost of things and we wrote down what a house cost, dinner cost, car cost in 1947 and 1988 compared to our wages.
When you ratio everything, he was 2% better off in 1947 than I was in 1988. All though long dead if he saw the house prices today as they have gone up another 10 times from 1988 to today.
So look at inflation and what it does.
1-It forces people to fight for wage increases to stay at the same economic level, people think they are winning while they are staying at the same place.
2-Money in the bank in anything other than term deposits loses value, even savings accounts that pay the inflation rate as a interest rate per year is then taxable. So you lose real value at a rate of 1-2% per year.
3-Trying to retain the real value pushes people into mutual funds which hopefully pay out more than term deposits and for me have returned 1-3% more than the inflation rate once taxes are paid.
Living in a free market economy, this financial system functions to self sustain, every opportunity to make money comes with it’s associate risk of losing the money.
You could be a little cynical and say Inflation is the process of having the average citizen treading water madly to keep their head above water, while seeing some people sink. Leaving the still breathing with a sense of succeeding while in reality they are in the same place.
at 2% per year the value of a dollar would double every 35 years and increase a thousandfold ever 350 years and make a million dollar worth what a dollar is worth today in 700 years.
It seems rather unlikely that the dollar will still be used as it is now that far in the future.
Star Trek: The Next Generation was set in a time when at 2% inflation per year $1000 would be worth $1 of today. They didn’t use money anymore in Captain Picard’s time.
That was a rather utopic vision of the future, but for an average of 2% inflation things would have to be incredibly stable.
It seems like that the US dollar ceases to be a thing long before that happens for some reason or another.
But imagining that it did stay a thing for long enough to reach such high inflation values at such low rates, that would not be a big issue either.
The USD and the Japanese Yen did start out being worth the same (both being copies of a popular silver coin) Nowadays a Dollar is worth 140 Yen and people in Japan still manage to deal with that.
At 2% annual inflation the US dollar will not be worth what the Yen is worth today for a quatre of a century.
So if Americans are still using paper money and coins in 250 years they will be able to deal with that the way the Japanese are dealing with it now.
Eventually the cent will disappear. The Japanese Yen had a cent like subunit at some point and it went a way. In fact the US Dollar used to have coins worth less than a cent. The US stopped minting half cent coins in 1857.
At that point the 0.5 cent coin was worth what 17 cent are worth today meaning that by all logic the US should have given rid of at least their 1 cent coin a while ago.
It cost the US government more than a cent to make a cent coin and it has little use today. the only reason it seems to still be made is that the companies who profit from the minting of those useless coins are lobbying to keep getting paid.
Other countries are in the process of phasing out similar small coins and eventually the US will too.
A century or two from now the idea of pricing things in fractions of a dollar might seem ridiculous to most people.
Of course physical money appears to be on the way out regardless. Governments have more control over people if all the money is electronic, so it seems a likely long term trend even if it is not a popular change.
Bigger bank notes might otherwise become a thing, but especially for bigger sums government are discouraging the use of cash in transactions.
So you might never see large bank notes worth thousands of dollars again, they used to be thing a century ago when they were worth much more by comparison.
Even ignoring all that adding a few extra zeros would not break anyone.
If worst comes to worst the us government can do what turkey did when they replace their old lira with new lira currency. they basically just struck out the last 6 zeros and made a new lira worth a million old ones. that made the math for the transition easy for everyone and made the numbers much more manageable. (Lets no talk about what Erdogan did with the Lira later.)
In general it seems much more likely that the USD gets replaced by a new currency like the euro replaced the national currencies in Europe because it merged closer economically with perhaps Canada and others or be replaced by new currencies because the country broke apart.
Or it might undergo a financial crisis and have some hyperinflation or otherwise necessitate a switch to a new currency.
Or money goes almost entirely digital.
Or it becomes increasingly irrelevant as we go to a place where automation and social programs have made money less of a thing.
Or the opposite happens and we all live in a cyberpunk dystopia where everyone uses company script again and is in debt to google and facebook and walmart.
whatever happens, I think the least likely thing is that everything stays stable and like it is today for long enough that 2% inflation amounts to too much.
Yes. In 1200AD in England an average wage would be about a penny a day in old money or 1/240th of a pound. So a yearly income of about £1.50 (or $2)
So to them everything here would be astronomically expensive. To cope with this we have redefined the penny – so there’s now 100 to the pound, but crucially we changed the coinage. That medieval penny was made of Silver and weighed 1.5g and at today’s silver price thats worth about £1. So we effectively created a new pound worth 100x the old pound.
My parent’s bought their house in 1970 for £3,000 and it would now be worth around £300,000, so 100x inflation apparently doesn’t need redefining the currency. On the other hand, the french did revalue to a new franc in 1960 where each new franc = 100 old francs. https://en.wikipedia.org/wiki/French_franc#New_franc
So whether you end up with new dollars or not seems to be random – you might just get million dollar bills
In a hypothetical where cars would have existed 200 years ago, there’d be someone going *”At an average of 2% inflation, an equivalent new car that costs $800 today would cost $40,000 in 200 years”*.
It’s all relative. Things will look “Astronomical” heights if we base it on today’s standards.
>Assuming matching(ish) wage growth (i.e. a household of two married professionals could still afford a $2M car), what are the government’s options?
If wage growth matches inflation rate then there’s arguably little need to do anything – if indeed the amount of work/ resources you need in order to acquire the cash to afford such a car is the same as you would today.
It’s just an arbitrary number. What matters is its purchasing power at the time.
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