economics free market

A great explanation

I just read Bastiat’s explanation for inflation, and it’s a good one. Most people do not get the relationship of the amount of money and prices. Think of it this way…

Remember, wealth is measured not by little pieces of green paper, but in the goods, services, and experiences that are available to us. If the government doubles the amount of money in circulation tomorrow, what would happen? Most people would say that we would be able to buy twice as much. But there’s a problem, the amount of things we can get for that money has not doubled! In other words, it is the same stuff being sold but with twice as much money around… The result is that everything will cost twice as much. That is the same as inflation which is the same as currency devaluation…

It’s even sneakier than that. There will always be people that figure this out sooner than others. Typically, the people that deal with money (bankers, investors, etc.) will recognize this first, and everyone else catches on later. Inflation almost always results in a widening gap between the rich and the poor because the people in the know can take advantage of the extra money before everyone else realizes it isn’t worth as much. Inflation is something to watch out for, we should yell as loud as possible to prevent the government from “printing money” in order to “pay” for something. It can’t work in the long term…

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