5 ms·

I will admit up front that my understanding of what causes inflation is, extremely limited, but it is not clear to me why. Isn't one story of how some currenci

by drdeca 6y ago

I will admit up front that my understanding of what causes inflation is, extremely limited, but it is not clear to me why. Isn't one story of how some currencies get their start, that some monarch or someone wants their troops fed, and so they require (on threat of force) that their subjects pay a tax in coins that the monarch has printed, and distributes to their troops? If they did this continuously over time, say distributing only the same coins to their troops that they received as taxes, (or, keeping the amount in circulation constant, by some means), why would the amount of bread that each coin would tend to buy, decrease over the years? (Of course, the monarch or whatever would also use some of the same coins for their own use, but they aren't being paid to do anything.)

mrkramer 6y ago
Money supply and money circulation depend on market activity, you can't keep amount of money constant because there is no perfect competition in which demand and supply are equal. There is nothing wrong with subsidizing citizens and/or companies but there should be limit because you can end up with inflation where you for example over subsidy citizens and therefore excess of money and demand drives prices of goods and services up. Reflecting on your example Roman Empire for instance had huge military expenses and they started diluting coins in order to mint more coins but they ended up in inflationary spiral in which coins eventually lost value and their economy collapsed. Here is chart showing debasement of roman coins: https://en.wikipedia.org/wiki/Debasement#/media/File:Fineness_of_early_Roman_Imperial_silver_coins.png https://en.wikipedia.org/wiki/Debasement#/media/File:Finenes...
- drdeca 6y ago
  > you can't keep amount of money constant because there is no perfect competition in which demand and supply are equal. I don't understand what you mean. What are the supply and demand in question? supply of and demand for money? I've generally been confused by what people mean when they talk about the demand for money, especially when they talk about whether it is equal to the supply. The supply of money is a particular quantity of money (like, M0 or M1 or M2 or whatever), and so, if the question "is the demand for money equal to the supply of money?" to not have a type error, then the demand for money would have to also be a particular quantity of money. But, I don't understand what this quantity could mean. I understand that for each desirable item, there is a "how many [the type of item] would you be willing to forgo for [quantity of money]" which relates how much someone values money, their demand for it, in terms of each of the types of items, but I see no way to take these together to produce a single quantity with units of money. Maybe add up how much someone would accept as payment in terms of each of their possessions individually? idgi. __ I appreciate that chart and the info about Roman Empire coins. I of course recognize that increasing the amount of money the state spends, making it easier for people to obtain money, tends to make the money less valuable, but I think this would be largely counteracted by increasing the amount of money that the state requires that people return to it? Though, there is of course a limit to how much you can pay for this way. If you were a sovereign and wanted to, idk, produce as many chicken eggs as you could, by increasing spending on chicken eggs while also increasing the amount of taxes you attempt to extract, you will eventually run up to a limit on how many chicken eggs you can get each year, and trying to buy more chicken eggs, would just result in either the price of chicken eggs increasing without increasing how many you get, or would just result in more people being unable to pay their tax obligations and being punished. Probably also a lot of people starving and such, because this would be forcing as much of the economy as you can towards producing chicken eggs? Kind of a horrifying situation actually. Would probably produce decreasing numbers of chicken eggs at some point. Well, much before this point, there would be a coup/coop. haha. But, yeah, there's clearly a limit, and I suppose that this probably suggests a flaw in the way I initially thought of the idea, but I'm not where. Ok, yes, it does show that increasing how much you spend, even if you claw all of it back through taxes, will eventually buy smaller quantities of the thing you are spending on, per unit. In the chicken egg situation, how would the price of the cheapest sufficiently nutritious meal change? This isn't clear to me.
  - mrkramer 6y ago
    I was referring to perfect market competition: https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition [1] And I said money supply depends on market activity meaning only scenario where would amount of money be constant is perfect market competition(quantity demanded and quantity supplied are equal) but perfect market competition does not exist in reality. It is also called Market equilibrium: "in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers." [2] [1] https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition [2] https://en.wikipedia.org/wiki/Economic_equilibrium https://en.wikipedia.org/wiki/Economic_equilibrium

by drdeca 6y ago

mrkramer 6y ago

Money supply and money circulation depend on market activity, you can't keep amount of money constant because there is no perfect competition in which demand and supply are equal. There is nothing wrong with subsidizing citizens and/or companies but there should be limit because you can end up with inflation where you for example over subsidy citizens and therefore excess of money and demand drives prices of goods and services up. Reflecting on your example Roman Empire for instance had huge military expenses and they started diluting coins in order to mint more coins but they ended up in inflationary spiral in which coins eventually lost value and their economy collapsed. Here is chart showing debasement of roman coins: https://en.wikipedia.org/wiki/Debasement#/media/File:Fineness_of_early_Roman_Imperial_silver_coins.png https://en.wikipedia.org/wiki/Debasement#/media/File:Finenes...

drdeca 6y ago
> you can't keep amount of money constant because there is no perfect competition in which demand and supply are equal. I don't understand what you mean. What are the supply and demand in question? supply of and demand for money? I've generally been confused by what people mean when they talk about the demand for money, especially when they talk about whether it is equal to the supply. The supply of money is a particular quantity of money (like, M0 or M1 or M2 or whatever), and so, if the question "is the demand for money equal to the supply of money?" to not have a type error, then the demand for money would have to also be a particular quantity of money. But, I don't understand what this quantity could mean. I understand that for each desirable item, there is a "how many [the type of item] would you be willing to forgo for [quantity of money]" which relates how much someone values money, their demand for it, in terms of each of the types of items, but I see no way to take these together to produce a single quantity with units of money. Maybe add up how much someone would accept as payment in terms of each of their possessions individually? idgi. __ I appreciate that chart and the info about Roman Empire coins. I of course recognize that increasing the amount of money the state spends, making it easier for people to obtain money, tends to make the money less valuable, but I think this would be largely counteracted by increasing the amount of money that the state requires that people return to it? Though, there is of course a limit to how much you can pay for this way. If you were a sovereign and wanted to, idk, produce as many chicken eggs as you could, by increasing spending on chicken eggs while also increasing the amount of taxes you attempt to extract, you will eventually run up to a limit on how many chicken eggs you can get each year, and trying to buy more chicken eggs, would just result in either the price of chicken eggs increasing without increasing how many you get, or would just result in more people being unable to pay their tax obligations and being punished. Probably also a lot of people starving and such, because this would be forcing as much of the economy as you can towards producing chicken eggs? Kind of a horrifying situation actually. Would probably produce decreasing numbers of chicken eggs at some point. Well, much before this point, there would be a coup/coop. haha. But, yeah, there's clearly a limit, and I suppose that this probably suggests a flaw in the way I initially thought of the idea, but I'm not where. Ok, yes, it does show that increasing how much you spend, even if you claw all of it back through taxes, will eventually buy smaller quantities of the thing you are spending on, per unit. In the chicken egg situation, how would the price of the cheapest sufficiently nutritious meal change? This isn't clear to me.
- mrkramer 6y ago
  I was referring to perfect market competition: https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition [1] And I said money supply depends on market activity meaning only scenario where would amount of money be constant is perfect market competition(quantity demanded and quantity supplied are equal) but perfect market competition does not exist in reality. It is also called Market equilibrium: "in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers." [2] [1] https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition [2] https://en.wikipedia.org/wiki/Economic_equilibrium https://en.wikipedia.org/wiki/Economic_equilibrium