Why if I have $100 right now, 10 years later that same $100 will have less purchasing power? Why can’t our money retain its value over time, I’ve earned it but why does the value of my time and effort go down over time?
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Suppose every worker and employer were kind hearted and generous. Workers wanted to be paid what their work was worth, and employees wanted to be paid fairly, and nobody cared about profit.
Now, there’s a mine that produces widgets and widgets are really important. There is an unlimited supply of widgets, but the more you mine, the deeper the miners must go to get them.
When the mine’s widgets were really close to the entrance, a miner could mine 1 widget every hour. But as the mine gets deeper, the miner has to walk further and further. Eventually it becomes a 30 minute walk each way, and he can only mine 1 widget every 2 hours.
To make up for this, the employer has to hire twice as many people. His cost just doubled. Now he has to pass that onto the consumer.
That consumer can now only get half as many widgets. But they need the same amount, so now they need their salary to go up. So they go to their employer. They agree to the raise, but now they pass that cost on to their customers, and it keeps going.
The cost of making things can change over time. Sometimes we get better at making them, and they get cheaper. Sometimes the materials become more expensive and the product does too.
And this example is for a perfect world! Just imagine how much worse this becomes when people get greedy and when something is in limited supply. They charge a lot for rent, or buy Taylor Swift tickets and sell them for twice as much.
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