Money is a mind game. You get these little pieces of paper and other people give you neat stuff in exchange for it. But it’s not about the paper but the resources that it represents, and we’d all do well to remember that. Here’s one example, a person could buy a comfortable house in 1960 for $10,000. You can’t do that today. So what happened? Did houses (a) get more valuable? Even though modern construction techniques and innovations have made them much easier to build? Or, (b) did the money loose its value?
If you answered “b” you are correct! So how does this happen? There are many factors that govern the amount of dollar bills you must fork over to get neat stuff… like houses, but in this case the major culprit is a printing press. Let me explain:
Key to understanding economics is the word “scarce”. (see header for economics defined) No one is going to trade you anything for air because air is not scarce, much to Algore’s chagrin. If we colonize the moon then that would be a great place to set up an air store. On the same token, the more money that’s printed the less scarce it becomes, and so the less value it maintains. The real winners in this scheme are the printers. These guys get to spend the dollar bills before the poor slubs that are taking it in exchange for their stuff have had a chance to figure out that it’s not worth as much anymore.
Now keep in mind that there’s more than one way to increase the supply of dollar bills, and it’s not always wrong to increase them. But since I promised myself to keep these posts to less than 250 words thereabouts, I’ll have to talk about that later.