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
The total amount of economic activity taking place increases over time and therefore the total number of dollars needed to express it must also grow. Let’s say there are 10 people in a village doing different tasks and a day’s work pays a dollar. You need to have $10 change hands daily to express that. If the village grows to 20 people but the currency supply doesn’t keep up then the daily pay must fall to $0.50. Incidentally this is part of why the gold standard (or Bitcoin) can’t work.
Additionally some inflation is generally useful for encouraging consumption and investment. If a dollar holds its value (or worse yet increases) then the optimal strategy may be to bury it. This reduces demand which reduces economic activity. The value associated with that capital is frozen. You want the dollars to circulate, either by being used to purchase goods by the holder or by being loaned out by the holder to someone else who needs goods. That keeps them moving, the holder performed some activity to earn the dollar and now the dollar is being paid to someone else to provide some other goods or services.
You don’t want hyperinflation, but you want some.
Lastly it’s nice for the government to be able to spend without taxing by printing from time to time. Nobody likes taxes but nobody notices when the monetary supply goes up a little. Helps smooth things over.
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