Inflation, is the simple answer. But what causes this? Why couldn’t society just keep on keeping on with prices? Examples, a $0.25 for a candy bar, $0.75 for a fast food burger, $30k for a home etc. It worked then, so why not now, why not just agree to lower the prices of everything?
In: Economics
Another post is a good explanation of why it is optimal to have a small amount of inflation. This is an answer to a tangential question.
Nobody keeps money in dollars. Dollars are the price of things, they are not an investment.
Some prices go up, some go down. Aluminum used to be the highest priced metal.
When real estate and wages rise, the price of other things goes up too.
The dollar is a measure of relative value. It is not an investment. Who cares if a dollar bought more or less 60 years ago. How much of your net worth is in dollars? Whatever paper dollars is in your wallet. Even your bank deposit isn’t dollars, it is a loan to a bank. Dollars pay no interest.
People buy homes and get a mortgage and then are short (negative) dollars. When they buy a house with a mortgage, they have an asset (home) priced in dollars and owe dollars. They hope their home goes up, priced in dollars, relative to their loan which is fixed in dollars with an interest rate (unless it is a variable rate loan, of course).
Comparing the dollar (a price) to something priced in dollars like an asset like gold or real estate or wages doesn’t make any sense. One is a price and the other is priced. You can compare the price of wages vs. real estate vs. food but comparing the dollar? A dollar is a dollar. it’s like the kilogram for weight. You don’t compare kilograms to things that are weighed in kilograms.
It’s like saying:
“why was the kilogram so much more 60 years ago because now the average person weighs so much more in kilograms than they did back then”
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