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Inflation is like the metabolism of an economy. Money represents work done in the past. Inflation means that work done further in the past is worth less than mo

Inflation is like the metabolism of an economy. Money represents work done in the past. Inflation means that work done further in the past is worth less than more recently. So $10 today is worth less tomorrow. Some economies have a faster metabolism than others. If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. In a physical money economy, that literally means it comes out of someone's pocket in some way (starting a business etc.). You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. To be honest, I don't have the proper expertise to explain it perfectly. But I hope that it gives an intuition.

zajio1am 6y ago
> If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. ... You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. No. the interest is just a claim on part of real production. Creditors would buy some products or services from debtors and that is where $5 came from.
- TheUndead96 6y ago
  Well imagine if there is only $55 worth of currency in circulation. Or better yet only $52. The lender ends up with all the currency in the end (and maybe some that does not exist yet). The response is that currency is printed. If the production of society increases at the same rate as interest, then there is no problem, but that is rarely the case. This is why there is more debt than money in the world. Currencies are then deliberately debased in order to pay back debt quicker. https://www.cato.org/policy-report/julyaugust-2011/deficits-debt-debasement https://www.cato.org/policy-report/julyaugust-2011/deficits-... (I realise limiting the money in circulation to $52 is an absurd formulation, but using these crazy limits helps understand the larger system) The difference between real growth and the amount of currency is the "metabolism" I referred to earlier.
  - eru 6y ago
    It seems you are somewhat confused. First, central banks usually send any profit they make to their governments. (See eg https://www.google.com/search?q=fed+profits+to+treasury https://www.google.com/search?q=fed+profits+to+treasury for lots of examples.) The governments then spend the money. There's no endless accumulation. Second, there were long stretches of time in the past when inflation was zero or even negative. Have a look at the so called 'Long Depression', a period of rapid productivity growth in the latter part of the 19th century. Just look electronics usually fall in price these days, almost everything slowly fell in price back then over long periods of time. But banks were just as 'evil' as they are now, and people paid interest. Third, money doesn't have to be based on debt, either. Historically money based on commodities was common. But in Japan their central bank recently bought stocks in return for newly 'printed' money. There's no obligation on anyone to ever buy the stocks back from the central bank.
    - TheUndead96 6y ago
      Thanks for the clarification.

zajio1am 6y ago

> If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. ... You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. No. the interest is just a claim on part of real production. Creditors would buy some products or services from debtors and that is where $5 came from.

TheUndead96 6y ago
Well imagine if there is only $55 worth of currency in circulation. Or better yet only $52. The lender ends up with all the currency in the end (and maybe some that does not exist yet). The response is that currency is printed. If the production of society increases at the same rate as interest, then there is no problem, but that is rarely the case. This is why there is more debt than money in the world. Currencies are then deliberately debased in order to pay back debt quicker. https://www.cato.org/policy-report/julyaugust-2011/deficits-debt-debasement https://www.cato.org/policy-report/julyaugust-2011/deficits-... (I realise limiting the money in circulation to $52 is an absurd formulation, but using these crazy limits helps understand the larger system) The difference between real growth and the amount of currency is the "metabolism" I referred to earlier.
- eru 6y ago
  It seems you are somewhat confused. First, central banks usually send any profit they make to their governments. (See eg https://www.google.com/search?q=fed+profits+to+treasury https://www.google.com/search?q=fed+profits+to+treasury for lots of examples.) The governments then spend the money. There's no endless accumulation. Second, there were long stretches of time in the past when inflation was zero or even negative. Have a look at the so called 'Long Depression', a period of rapid productivity growth in the latter part of the 19th century. Just look electronics usually fall in price these days, almost everything slowly fell in price back then over long periods of time. But banks were just as 'evil' as they are now, and people paid interest. Third, money doesn't have to be based on debt, either. Historically money based on commodities was common. But in Japan their central bank recently bought stocks in return for newly 'printed' money. There's no obligation on anyone to ever buy the stocks back from the central bank.
  - TheUndead96 6y ago
    Thanks for the clarification.