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
If there are only 100 dollars that exist, 1 dollar is pretty valuable.
If there are only 1,000,000,000,000 dollars that exist, 1 dollar doesn’t mean shit.
60 years ago, there were a lot fewer dollars that existed compared to today.
That’s pretty much it.
If $ is worth more when you don’t spend it, experts say that will stagnate the economy, because people won’t spend money. Thus we have inflation.
There are several deflationary currencies available, like Bitcoin, but the jury is still out on them.
>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.
Interestingly that is how the Communist USSR – the government decided the prices, and it didn’t really matter what the cost of productions was. The observable problem with government set pricing is that it result in goods no longer be available to buy, and wait lists for getting access to products. Once you have waitlist corruptions starts, because who would not want to pay some government official an extra $100 to jump the line.
And that is why we don’t like Communism.
It’s not inflation exactly. It’s depreciation. In a monetary system that allows interest bearing loans the natural result is that prices must go up and purchasing power drops. The government prints more money to prevent recessions and money becomes less valuable.
Most people don’t understand what inflation is and say it’s “government printing money”, which isn’t what inflation is. Inflation, in the simplest terms, is just the observation that prices have gone up. Prices increase/decrease based on supply of goods and services or demand of all that.
Your assumptions that everyone can agree to keep prices static forever is assuming that cities don’t grow, new people aren’t born or die, new workers enter the workforce, etc.
With your candy example at $0.25, let’s say the candy factory can only produce 4 bars for 4 people per day. What if people the city grows and now 8 people want the 4 bars? The factory can’t make more so the 8 people fight for it and the 4 richer ones are willing to pay $1 to the factory for each bar. Yea the factory will take the $1 and the new price of candy bars is now $1.
And if you ask “why doesn’t the factory make more bars”, but why would they do any extra work if they can make $1 over $0.25 for doing the exact amount of work. Would you? This explains the greedflation currently happening with companies that are refusing to lower prices that we all got used to paying during the pandemic.
A dollar is a unit of debt. Overtime debt devalues. This is natural and good; but of course people ruin everything they touch with corruption.
Let’s say you have 100 grams of gold
And let’s say for that 100 grams it’s 5000 right now (I am pulling numbers from thin air, to lazy to check gold value)
Let’s say that 5 years later it’s now worth 5500. That 100 grams of gold didn’t become anything else, it’s still the same but you need to spend more to get it, the money lost some value over the 5 years
So let’s say 60 years ago 20 bucks lets you buy a family of 4 groceries but those same groceries now cost 150, what you get now and what they got are equivalent but you pay more
Peak oil. It’s an input for everything in the modern economy, and the use of it destroys the planet, which wrecks the economy and its inputs, making everything more expensive to produce and more scarce.
The threat that your dollar will be worth less in the future makes you want to do *something* with it.
More importantly, if you have lots of dollars saved and actually have “extra” sitting around you are losing value unless you can find a way to beat inflation.
This means you lend it to others that might promise to pay you back more in the future (this is pretty much what you are doing with investments like owning shares in a company).
If your dollar wasn’t losing it’s value over time, you might just keep saving it. When enough people do this… this whole capitalism thing comes to a screeching halt.
Money needs to move for an economy to work. Inflation is part of the carrot and stick to encourage people to use the money.
Latest Answers