8️⃣ Inflation
Description
Inflation, the hidden tax.
Transcript
Imagine a village of 50 inhabitants, with 5,000 coins in circulation. That makes 100 coins per inhabitant.
In this village, let’s say there are 500 different items available for exchange. Fishing rods, bows, plates, shoes…
Prices will naturally settle. Whoever wants an item the most will be willing to pay more to obtain it.
Nicolas, for example, is willing to replace his shoes. He is ready to pay 15 coins. But Marie has none at all, and she is willing to pay 20 coins.
Now, let’s imagine that no exchange has yet taken place… And that we simply double the number of coins. There are now 10,000. That is 200 coins per inhabitant.
What happens?
Well… prices rise. Everyone is chasing the same goods… But with more money.
Nicolas is now willing to pay 30 coins for the shoes. And Marie, 40.
Yet the real value of the goods has not changed. It is the value of the money that has been cut in half.
When money is injected, prices rise. On the other hand, if the number of goods increases without changing the quantity of money, prices fall.
Creating wealth — what we call growth — therefore tends to lower prices. Creating money tends to raise them.
Inflation is not “life becoming more expensive.” It is money losing its value. It is an invisible tax that affects everyone… and not equally — but that is another story.