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People have a hard time keeping their incomes in line with the cost of inflation. Why do prices go up? Why can't everything always stay the same price - or go down - so that no one ever needs a raise at work? And I'm being serious. It makes no sense.
Hi 1phwalls,
There are two basic reasons why the price of something goes up. One is monetary inflation and the other is supply and demand. If the money supply increases then, in general, the price of a given item will rise. If the money supply is stable or even shrinking, then either a loss in supply or increase in demand will cause the price to rise, and in this case in real terms. Oil, for example, is rising in price due to demand. The fear is supply will also dwindle, meaning both supply and demand will cause a real rise in price.
The reason behind it may be further analyzed such as supply and demand. Why does one good tend to rise while another tend to continually fall in price? This is easier when really defining the inputs into a good. Basic resources tend to rise in price because of its relatively fixed supply such as gold. Those goods related to technology may simply looked at in the supply and demand model as a rise in supply of human technology as the in the VCR example. As a prime example, a more efficient computer coming into the market increases supply thus computers tend to always drop in price. In general goods drawing on technology will drop against an ever increasing supply of technology. Some goods tend to have both elements such as technology used to extract basic resources. Gold again being the prime example of something that has little technology related to it though there is mining technology to some extent.
As to why the money supply increases? That is the result of a credit based monetary system. All money is debt lent at interest. Thus the money supply represents the principle with the debt due with principle plus interest. The only thing that can happen is increasing debt/money or default. We pay a hidden inflation tax to the commercial banking system and to a some extent the Federal government.
Generally speaking, the monetary supply increases long-term due to POPULATION GROWTH. The reason things were generally cheaper 100 years ago deals more with population and population density than any other factor. If population growth stagnated everybody would see an aggregate increase in purchasing power, assuming all other variables (capital monopolies et al) remained fixed. The problem with this explanation is that it is politically incorrect, which is why economists never bring it up as a primary driver of the face-value acceptance of inflation as a fact of life.
Demand and supply, monetary policy and the alignment of the moons are mere artifacts of life, population increase is what drives steady-state perma-inflation. This is the reasons wars will be waged in the future, just like in the past, and innocent people will die in the quest for civilizations' battles for the control of life sustaining resources. Quite literally, we're baby-happy tribes who keep bumping up against our proverbial neighbors, and there's not enough sugar to go around. There's your macroeconomic answer in a paragraph, politically incorrect as it may be.
The reason things were generally cheaper 100 years ago deals more with population and population density than any other factor. If population growth stagnated everybody would see an aggregate increase in purchasing power, assuming all other variables (capital monopolies et al) remained fixed.
This to put it simply is hogwash. Have you even picked up a single book on economics? Population growth or changes in population density does not cause an increase in aggregate prices, why in the world would it? If you believe this explain why during the long depression between 1873–96 there was population growth yet...aggregate prices were decreasing. Of course, aggregate prices were decreasing because the US was going back on the gold standard and the supply of money was decreasing.
Population growth stagnation causes an increase in aggregate purchasing power!? HAHA. Where in the world did you get this idea from?
Amazing that you state something that is so wrong as some sort of fact.
Generally speaking, the monetary supply increases long-term due to POPULATION GROWTH. The reason things were generally cheaper 100 years ago deals more with population and population density than any other factor. If population growth stagnated everybody would see an aggregate increase in purchasing power, assuming all other variables (capital monopolies et al) remained fixed. The problem with this explanation is that it is politically incorrect, which is why economists never bring it up as a primary driver of the face-value acceptance of inflation as a fact of life.
Demand and supply, monetary policy and the alignment of the moons are mere artifacts of life, population increase is what drives steady-state perma-inflation. This is the reasons wars will be waged in the future, just like in the past, and innocent people will die in the quest for civilizations' battles for the control of life sustaining resources. Quite literally, we're baby-happy tribes who keep bumping up against our proverbial neighbors, and there's not enough sugar to go around. There's your macroeconomic answer in a paragraph, politically incorrect as it may be.
Hi hindsight2020,
Not sure I get this one. The money supply in the aggregate may go up or probably should for stable prices since the same amount of money would tend to cause price deflation(considering the population growth in this country and the loss of buying power of a dollar, its depreciation is understated. The finance industry has not only collected on the majority of dollar depreciation but also against of inherent deflation of a fixed money supply verse a growing population. We've been robbed, but I digress) . Money supply is still quite arbitrary and is a matter of policy. Before then, when silver or copper was the main currency, it had more to do with Cyprus and Peru than population.
What will be impacted is supply and demand. Technology will be in greater supply since specializing in large population zones is feasible at a larger scale. How many vascular surgeons are on Easter Island I wonder? On the other hand fixed resources, as we see in oil, will probably go up in price. However that is not with respect to money supply. When Europeans had enough population to discover Peruvian silver, that increased the silver supply but is more or less related to the vicissitudes of fortune.
This to put it simply is hogwash. Have you even picked up a single book on economics? Population growth or changes in population density does not cause an increase in aggregate prices, why in the world would it? If you believe this explain why during the long depression between 1873–96 there was population growth yet...aggregate prices were decreasing. Of course, aggregate prices were decreasing because the US was going back on the gold standard and the supply of money was decreasing.
Population growth stagnation causes an increase in aggregate purchasing power!? HAHA. Where in the world did you get this idea from?
Amazing that you state something that is so wrong as some sort of fact.
Hi user_id,
Actually the US went on a "gold standard" for the first time in the 1870s. Of course gold standards are nothing more than a promise to pay bank notes with gold since there really is not enough actual gold to go around.
People have a hard time keeping their incomes in line with the cost of inflation. Why do prices go up? Why can't everything always stay the same price - or go down - so that no one ever needs a raise at work? And I'm being serious. It makes no sense.
If you really want to understand why google "how the Federal Reserve Works" and do a little research. What you will find out will be a real eye opener.
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