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Yes, this makes perfect sense if we assume everything has a fixed value over time. If you trade one pig now in exchange for two later, obviously more work will
by dasil003 5y ago
Yes, this makes perfect sense if we assume everything has a fixed value over time. If you trade one pig now in exchange for two later, obviously more work will need to be done to raise two compared to what was originally done to raise one. However once you introduce currency into the equation the nominal value is de-coupled from actual value of goods. I think that's what GGP is getting at: doesn't inflation provide exactly the escape hatch where you can nominally charge interest but still not have true economic growth?
- PaulDavisThe1st 5y agoWell ... If there's inflation but no corresponding increase in the monetary supply, it becomes more difficult (in aggregate) to pay for things, which means that "actual economic growth" becomes necessary to pay the debt. If there's inflation and a corresponding increase in the monetary supply (e.g. where banks just print money and prices rise, in either order), then (in theory) paying off the debt becomes easier. If there's an increase in the monetary supply but no inflation, then (in theory) paying off the debt becomes easier. However, all these scenarios are unusual: in general, inflation is assumed to be controlled, and roughly known, and the interest rate will already include the assumed rate of inflation. When things go upside down w.r.t. inflation, you can certainly get unusual conditions around debt. But that's not the normal situation, even when there is actual inflation.