: Why is (consistent and steady) inflation considered to be a good thing? We hear about rising wages chasing the rising cost of living, and we do this calc every time we look at historical prices, so why is this better than static prices? Is it all driven by TVM?

Question

: Why is (consistent and steady) inflation considered to be a good thing? We hear about rising wages chasing the rising cost of living, and we do this calc every time we look at historical prices, so why is this better than static prices? Is it all driven by TVM?

In: Economics

Answer 1

To understand why we need to go back to the nature of money.

Remember that money itself should not be valuable.  What’s valuable are the goods and services that we can trade for using money.

Money is really just a unit of information used for trade, like the ones and zeros in your computer.

Our economy only works because we trade goods and services. If everyone just holds on to money, and not move the signal along, the trading slows down, and the real wealth we have starts to decay.  

So, you want to penalize people for holding onto money, just enough that there’s some impetus to put it to work.