6 ms·

It didn't use to matter much. Consistent inflation is a rather new phenomenon that basically only appeared after WWII. There was for example almost no inflation

It didn't use to matter much. Consistent inflation is a rather new phenomenon that basically only appeared after WWII. There was for example almost no inflation in Britain between 1814 and 1914. For the record, in case there still are Ron Paul fans/goldbugs out there: moderate inflation is generally considered a good thing by economists today and inflation is probably too low at the moment.

msandford 11y ago
Personally, as a reductionist, I like the idea that money is somehow permanent. Maybe economists like inflation, and perhaps it is "good" for the economy overall. But the idea that a dollar saved today can buy roughly the same amount of stuff in a decade or a century seems like a powerful idea to me. To me that seems like a goal that's worthy of pursuing because then money becomes a true abstraction that's not leaky. And because of the way my brain works, I see that as incredibly useful. Not having to always inflation adjust things, not having to do this or that, not having to worry about how much retirement you actually have versus how much you think you have, etc. I understand that for various reasons few other people want this, but that doesn't convince me personally otherwise. One person described money as "sweat, distilled" and I find that definition incredibly attractive. I recognize that plenty of people making money not by sweating but thinking or whatever, but I still find it an excellent description. And I can't see how devaluing a person's effort over time is a viable strategy for building a lasting civilization. I think it leads inevitably towards the kind of throwaway society we have here in the US and virtually guarantees that we won't build infrastructure of long lasting value like exists elsewhere in the world. Well built stuff can last for hundreds or thousands of years. I wish money was the same.
- simonh 11y ago
  It might seem like a nice idea that cash stuffed in a mattress for a few decades would keep it's value, but that's not beneficial to society. Encouraging money to be invested in order to earn a premium, and stave off inflation, is a good thing overall because it puts wealth to work creating jobs and stimulating economic activity.
  - WoodenChair 11y ago
    You just argued that we need inflation to stave off inflation.
    - gahahaha 11y ago
      No he didn't. He argued that we need inflation to stop hoarding of money and make people spend their money and create activity in the economy. This is important because in the economy as a whole TotalSpending == TotalIncome
    - Dylan16807 11y ago
      No, that's not what that post says. I'll reword it for you: 'Encouraging money to be invested, by motivating people via inflation, is a good thing overall because it puts wealth to work creating jobs and stimulating economic activity.'
    - chucksmash 11y ago
      He said that as a society we benefit from inflation because as individuals we are forced to invest our funds so that individually we can avoid the effects of the inflation.
  - iopq 11y ago
    Except it is beneficial, because that cash inside the mattress will get spent eventually. Guess when it gets spent? During a financial crisis. If everyone had a little bit of cash in their mattress, the spending wouldn't go down as much and the crisis would have a limited impact.
- hsk 11y ago
  One aspect of inflation is that it is a tax on people who choose to hoard their money. Because inflation naturally makes every dollar worth less and less over time, you are forced to either spend it now or invest it somewhere that grows with inflation. As a result, money is actually utilized instead of sitting in a bank account. Thus, I think the idea that a dollar saved today can buy roughly the same amount of stuff in a decade is actually bad, because in a world where that's likely, that dollar was probably sitting useless in someone's purse for a decade. Inflation, in my opinion, actually does the opposite of what you suggest -- because it encourages lending and investing in order to beat inflation, money is actually put to use for longer term projects such as infrastructure that can last years and years.
  - hga 11y ago
    As a result, money is actually utilized instead of sitting in a bank account. Because we all know banks put all the currency they receive in huge vaults filled with paper $100 bills, instead of, oh, lending it out (several times over one way or another). Unless you're converting it all to gold, or stuffing it under a mattress, your savings are in institutions like banks which are not a sink where the velocity of your money goes to zero, outside of economic messes where they aren't willing to lend, or people are afraid to borrow. And your being encouraged to spend your money doesn't seem to help those situations.
    - msandford 11y ago
      > Because we all know banks put all the currency they receive in huge vaults filled with paper $100 bills, instead of, oh, lending it out (several times over one way or another). Right?! Every bank vault is just huge piles of gold bars and ornery old men counting and recounting the money, hoarding it up and never loaning it out.
    - nshepperd 11y ago
      A piggy bank would have been a better example. Anyway, it's not an argument against inflation: the reason putting your money in a bank account is a good idea today is (among other things) because they do invest it to stave off inflation. So inflation doesn't preclude saving (as in savings accounts), it just makes sure you save in better ways, like storing it in a bank that does lending.
- GnarfGnarf 11y ago
  Money is a measure of power. With money, you can make people do things for you. People don't crave money for its own sake. They crave money for the power it gives them over others.
- hga 11y ago
  Expanding on that, I came of age during the '70s where I believe the major transition in inflation expectations occurred, and being numerically literate, I have a feeling for how the value of the dollar declined (which I frequently reify with this calculator http://www.bls.gov/data/inflation_calculator.htm http://www.bls.gov/data/inflation_calculator.htm but know the government understates it, see below for one example). When I see, oh, normal genre 300-500 page paperbacks going for Amazon prices from 8-11 USD, mid '80s official inflation adjusted prices of ~$3.65-5, and lower actual prices from a quick check of my library, my response to the higher end is not no, but hell no, and I'm not going to buy the lower end new for all but the most exceptional titles. Many economists think deflation causes people to hoard their money, since an item bought tomorrow will cost less (assuming your form of storage survives, $N in a bank that goes bust before the FDIC was established is worth $0), and the reverse for inflation. I think it's a lot more complicated than that.
  - msandford 11y ago
    I agree that it's more complicated than that! Maybe for any 0.1% of change in the interest rate or inflation rate there is a marginal effect. But eventually quantitative differences become qualitative ones. When the interest rate you pay is 4%, the inflation rate is 2% and the interest that you earn is 0.25% quantitative changes become qualitative ones at numbers that seem very innocuous.
  - jsprogrammer 11y ago
    Deflation would evaporate the money supply in months. It won't be allowed to happen as it is "game over".
    - msandford 11y ago
      2% annual inflation isn't a big deal, but 2% annual deflation would make all the money disappear in less than a year? How can that be so? I do understand that for double-digit losses and gains things are nonlinear, in other words a 50% loss means that you need a 100% gain to offset it, and a 90% loss needs a 1000% gain to offset. But in the single digits, this is very close to linear. If you lose 5%, then gaining back 5% leaves you very close to even. If 2% compounded deflation is the end of society, how can 2% compounded inflation be the savior?
- anigbrowl 11y ago
  On the other hand, when you consider what money is an abstraction for - economic resources - inflation doesn't seem so unreasonable. Consider one fairly standardized resource unit - a barrel of oil. Crude oil lasts pretty well, but refined oil products definitely have a shelf life. Food commodities are of course perishable, and real estate can often lose use value if buildings aren't properly maintained. Of course this is not to say that all resources are perishable or perishable to similar degrees, but nature does impose 'use it or lose it' conditions of its own. The other thing to consider is that any decision to wait has an opportunity cost, and the baseline opportunity cost is captured by the interest rate. Since nobody is going to stop charging interest to borrow money - even in sharia finance you pay a rental cost for money that is very very similar to interest - it would seem as if price inflation was an unavoidable characteristic of any system involving credit or loans.
  - gohrt 11y ago
    Money, or more properly, _currency_, is not a store of value. Oil, timber, or woool is a store of value -- it is actually something you can use. Money is an abstract "IOU", a right to demand someone give you something of value. At the end of the day, a society with oil, timber and wool is better than a society with only money. The only utility money has is that it facilitates production, instead of leaving people unemployed and starving because they have no convenient way to trade their labor or capital for whatever they need.
    - anigbrowl 11y ago
      Yes...that's why I described money as 'an abstraction.' My point is that the underlying resources on which money gives you an easy means of purchasing a claim (instead of having to barter) are sometimes perishable, which means that opting to store rather than use them can have a cost (separate of the opportunity cost of foregone alternatives) and inflation could be thought of as the incorporation of the aggregate perishability of goods into the abstraction of currency. I can't give you a citation for this, it's just my personal conjecture.
- ArkyBeagle 11y ago
  But permanent with respect to what? US GDP is 16.77 trillion. In 1950 it was $.3T. Ratio is 55:1. Population is only approximately 2:1. That's a compounded growth rate of 5%. So really- just to break even and make a dollar mean the same thing, we'd need an average money supply growth of 5% ( which is not the same as inflation ). But all the prices will be radically different - some more, some less.
- Spooky23 11y ago
  No inflation encourages the type of behavior that we're seeing today -- hoarding of US dollars. Gold as currency had lots of really negative effects, read up on the populist movement in the late 19th century U.S. and the background of the "Wizard of Oz" story.
mikeyouse 11y ago
There was a period of low inflation during that time frame but it temporary and isolated.. There were huge inflation swings before, during, and somewhat after that time.. http://imgur.com/HLfnO6R http://imgur.com/HLfnO6R
- gahahaha 11y ago
  I think you'll observe that there are periods of inflation offset by periods of deflation, meaning that over time the value of money was somewhat more stable than your image implies.

msandford 11y ago

Personally, as a reductionist, I like the idea that money is somehow permanent. Maybe economists like inflation, and perhaps it is "good" for the economy overall. But the idea that a dollar saved today can buy roughly the same amount of stuff in a decade or a century seems like a powerful idea to me. To me that seems like a goal that's worthy of pursuing because then money becomes a true abstraction that's not leaky. And because of the way my brain works, I see that as incredibly useful. Not having to always inflation adjust things, not having to do this or that, not having to worry about how much retirement you actually have versus how much you think you have, etc. I understand that for various reasons few other people want this, but that doesn't convince me personally otherwise. One person described money as "sweat, distilled" and I find that definition incredibly attractive. I recognize that plenty of people making money not by sweating but thinking or whatever, but I still find it an excellent description. And I can't see how devaluing a person's effort over time is a viable strategy for building a lasting civilization. I think it leads inevitably towards the kind of throwaway society we have here in the US and virtually guarantees that we won't build infrastructure of long lasting value like exists elsewhere in the world. Well built stuff can last for hundreds or thousands of years. I wish money was the same.

simonh 11y ago
It might seem like a nice idea that cash stuffed in a mattress for a few decades would keep it's value, but that's not beneficial to society. Encouraging money to be invested in order to earn a premium, and stave off inflation, is a good thing overall because it puts wealth to work creating jobs and stimulating economic activity.
- WoodenChair 11y ago
  You just argued that we need inflation to stave off inflation.
  - gahahaha 11y ago
    No he didn't. He argued that we need inflation to stop hoarding of money and make people spend their money and create activity in the economy. This is important because in the economy as a whole TotalSpending == TotalIncome
  - Dylan16807 11y ago
    No, that's not what that post says. I'll reword it for you: 'Encouraging money to be invested, by motivating people via inflation, is a good thing overall because it puts wealth to work creating jobs and stimulating economic activity.'
  - chucksmash 11y ago
    He said that as a society we benefit from inflation because as individuals we are forced to invest our funds so that individually we can avoid the effects of the inflation.
- iopq 11y ago
  Except it is beneficial, because that cash inside the mattress will get spent eventually. Guess when it gets spent? During a financial crisis. If everyone had a little bit of cash in their mattress, the spending wouldn't go down as much and the crisis would have a limited impact.
hsk 11y ago
One aspect of inflation is that it is a tax on people who choose to hoard their money. Because inflation naturally makes every dollar worth less and less over time, you are forced to either spend it now or invest it somewhere that grows with inflation. As a result, money is actually utilized instead of sitting in a bank account. Thus, I think the idea that a dollar saved today can buy roughly the same amount of stuff in a decade is actually bad, because in a world where that's likely, that dollar was probably sitting useless in someone's purse for a decade. Inflation, in my opinion, actually does the opposite of what you suggest -- because it encourages lending and investing in order to beat inflation, money is actually put to use for longer term projects such as infrastructure that can last years and years.
- hga 11y ago
  As a result, money is actually utilized instead of sitting in a bank account. Because we all know banks put all the currency they receive in huge vaults filled with paper $100 bills, instead of, oh, lending it out (several times over one way or another). Unless you're converting it all to gold, or stuffing it under a mattress, your savings are in institutions like banks which are not a sink where the velocity of your money goes to zero, outside of economic messes where they aren't willing to lend, or people are afraid to borrow. And your being encouraged to spend your money doesn't seem to help those situations.
  - msandford 11y ago
    > Because we all know banks put all the currency they receive in huge vaults filled with paper $100 bills, instead of, oh, lending it out (several times over one way or another). Right?! Every bank vault is just huge piles of gold bars and ornery old men counting and recounting the money, hoarding it up and never loaning it out.
  - nshepperd 11y ago
    A piggy bank would have been a better example. Anyway, it's not an argument against inflation: the reason putting your money in a bank account is a good idea today is (among other things) because they do invest it to stave off inflation. So inflation doesn't preclude saving (as in savings accounts), it just makes sure you save in better ways, like storing it in a bank that does lending.
GnarfGnarf 11y ago
Money is a measure of power. With money, you can make people do things for you. People don't crave money for its own sake. They crave money for the power it gives them over others.
hga 11y ago
Expanding on that, I came of age during the '70s where I believe the major transition in inflation expectations occurred, and being numerically literate, I have a feeling for how the value of the dollar declined (which I frequently reify with this calculator http://www.bls.gov/data/inflation_calculator.htm http://www.bls.gov/data/inflation_calculator.htm but know the government understates it, see below for one example). When I see, oh, normal genre 300-500 page paperbacks going for Amazon prices from 8-11 USD, mid '80s official inflation adjusted prices of ~$3.65-5, and lower actual prices from a quick check of my library, my response to the higher end is not no, but hell no, and I'm not going to buy the lower end new for all but the most exceptional titles. Many economists think deflation causes people to hoard their money, since an item bought tomorrow will cost less (assuming your form of storage survives, $N in a bank that goes bust before the FDIC was established is worth $0), and the reverse for inflation. I think it's a lot more complicated than that.
- msandford 11y ago
  I agree that it's more complicated than that! Maybe for any 0.1% of change in the interest rate or inflation rate there is a marginal effect. But eventually quantitative differences become qualitative ones. When the interest rate you pay is 4%, the inflation rate is 2% and the interest that you earn is 0.25% quantitative changes become qualitative ones at numbers that seem very innocuous.
- jsprogrammer 11y ago
  Deflation would evaporate the money supply in months. It won't be allowed to happen as it is "game over".
  - msandford 11y ago
    2% annual inflation isn't a big deal, but 2% annual deflation would make all the money disappear in less than a year? How can that be so? I do understand that for double-digit losses and gains things are nonlinear, in other words a 50% loss means that you need a 100% gain to offset it, and a 90% loss needs a 1000% gain to offset. But in the single digits, this is very close to linear. If you lose 5%, then gaining back 5% leaves you very close to even. If 2% compounded deflation is the end of society, how can 2% compounded inflation be the savior?
anigbrowl 11y ago
On the other hand, when you consider what money is an abstraction for - economic resources - inflation doesn't seem so unreasonable. Consider one fairly standardized resource unit - a barrel of oil. Crude oil lasts pretty well, but refined oil products definitely have a shelf life. Food commodities are of course perishable, and real estate can often lose use value if buildings aren't properly maintained. Of course this is not to say that all resources are perishable or perishable to similar degrees, but nature does impose 'use it or lose it' conditions of its own. The other thing to consider is that any decision to wait has an opportunity cost, and the baseline opportunity cost is captured by the interest rate. Since nobody is going to stop charging interest to borrow money - even in sharia finance you pay a rental cost for money that is very very similar to interest - it would seem as if price inflation was an unavoidable characteristic of any system involving credit or loans.
- gohrt 11y ago
  Money, or more properly, _currency_, is not a store of value. Oil, timber, or woool is a store of value -- it is actually something you can use. Money is an abstract "IOU", a right to demand someone give you something of value. At the end of the day, a society with oil, timber and wool is better than a society with only money. The only utility money has is that it facilitates production, instead of leaving people unemployed and starving because they have no convenient way to trade their labor or capital for whatever they need.
  - anigbrowl 11y ago
    Yes...that's why I described money as 'an abstraction.' My point is that the underlying resources on which money gives you an easy means of purchasing a claim (instead of having to barter) are sometimes perishable, which means that opting to store rather than use them can have a cost (separate of the opportunity cost of foregone alternatives) and inflation could be thought of as the incorporation of the aggregate perishability of goods into the abstraction of currency. I can't give you a citation for this, it's just my personal conjecture.
ArkyBeagle 11y ago
But permanent with respect to what? US GDP is 16.77 trillion. In 1950 it was $.3T. Ratio is 55:1. Population is only approximately 2:1. That's a compounded growth rate of 5%. So really- just to break even and make a dollar mean the same thing, we'd need an average money supply growth of 5% ( which is not the same as inflation ). But all the prices will be radically different - some more, some less.
Spooky23 11y ago
No inflation encourages the type of behavior that we're seeing today -- hoarding of US dollars. Gold as currency had lots of really negative effects, read up on the populist movement in the late 19th century U.S. and the background of the "Wizard of Oz" story.

mikeyouse 11y ago

There was a period of low inflation during that time frame but it temporary and isolated.. There were huge inflation swings before, during, and somewhat after that time.. http://imgur.com/HLfnO6R http://imgur.com/HLfnO6R

gahahaha 11y ago
I think you'll observe that there are periods of inflation offset by periods of deflation, meaning that over time the value of money was somewhat more stable than your image implies.