The Gaming Den

All right, I barely understand economics...I feel no particular shame in this admission, because every time I try, I end up listening to a lot of bullshit from people who apparently don't understand it either, because they all disagree with each other, and who can't explain anything in simple, clear words.

So can someone explain inflation to me, in terms suitable for a high school (hell, make it middle school) student?

My view up to this point has been that inflation is what makes candy bars cost 99 cents today when they used to cost a nickel. Is that about right?

Can we discuss causes of inflation? And how it's measured? I saw Frank mention in another post that "inflation is low right now"...if inflation is what I think it is, fuck no inflation isn't low...the increase in the real cost of ordinary goods in my own lifetime is pretty nuts. And if it isn't what I think it is...there's still an explanation needed.

Also; is inflation related to purchasing power? is it also tied to increases/decreases in wage levels?

Help a brother out.

Inflation is when the buying power of money decreases.

Basically it is when you have to pay more to buy the same things.

Inflation is when the amount of money that has a value is a bigger number. A candy bar costing more is part of it, but a CD player costing less goes the other way. Consumer prices are an average of everything you buy, some go up and some go down. Mostly they go up, because inflation is normally a positive number. But even that is only part of the story. The other part is wages - which also normally rise over time.

In 1950, the minimum wage was 75 cents an hour, and a comic book cost ten cents. In 2011, the federal minimum wage is $7.25 and a comic book costs 3 dollars. The modern day comic book is longer and has much better production values, but you'll note that in either case there has been an increase by about an order of magnitude in the last 60 years.

So ask yourself: how much is your paycheck increasing this year? That's the truest measure of inflation there is. If your paycheck isn't rising, but the cost of some stuff you want is, that's not really inflation. That's cost increases, which is another problem altogether. Right now candy bars in particular are getting pounded because there is a worldwide chocolate shortage - caused in no small part by the civil war in Ivory Coast (world's largest chocolate exporter). So a bar of chocolate is very likely to see price increases that have nothing to do with the value of a dollar changing.

On the flip side: if you were getting paid more, but the cost of things were holding steady, that would be wealth increases, which the United States hasn't much seen since the Carter Administration. It's only when wages and prices rise together that it's really inflation.

-Username17

The thing about inflation is that it's not necessarily a bad thing.

The media (because they are beholden to corporate and financial interests) always look at it from the side of pensions and savings ... but rarely from the perspective of debt.

The median citizen however has more debt than savings. A surge of inflation (both of wages and costs) initiated by government spending and central bank monetization (QE) will decrease debt burdens locked in at interest rates set during the period of lower inflation. Which is the modern day equivalent of devaluation (which is how FDR got the world going again after the great depression). It's the easiest way governments have of redistributing wealth (which is beneficial to the economy when there is a demand gap, which there is).

That said, the problem in the US is not purely one of too much private and sovereign debt ... it also has a trade deficit, so any devaluation also results in cost increases as foreign partners become less willing to take IOUs denominated in your own currency if you show readiness to devalue it. Which causes short term pain, long term though you want to have balanced trade ... unbalanced trade is fundamentally destabilizing. Now is as good a time as any to fix things.

Data Vampire wrote:Inflation is when the buying power of money decreases.

Basically it is when you have to pay more to buy the same things.

+1

There is more than one cause of inflation besides the printing of more money. For instance the rising price of oil has lead to most of the things we buy becoming more expensive because oil is used in manufacturing and shipping of those products.

Government gets creative with how they present inflation. They usually do it by finding the cost of a basket of goods in the current economy, but they leave out food and energy because they are volatile. Which really distorts the figures because people consume a lot of food and energy. For instance in Canada I think our official inflation rate has been about 2-3% per year for the last ten years, but from what I gather the real inflation rate is closer to 5-7% .

Juton wrote: There is more than one cause of inflation besides the printing of more money. For instance the rising price of oil has lead to most of the things we buy becoming more expensive because oil is used in manufacturing and shipping of those products.

No. That is an example of rising costs and lowered standards of living due to resource limitations. It is not an example of inflation, because it doesn't make dollars worth any less. Real things that really cost more or less relative to other things is not inflation or deflation.

Government gets creative with how they present inflation. They usually do it by finding the cost of a basket of goods in the current economy, but they leave out food and energy because they are volatile. Which really distorts the figures because people consume a lot of food and energy. For instance in Canada I think our official inflation rate has been about 2-3% per year for the last ten years, but from what I gather the real inflation rate is closer to 5-7% .

What you're talking about is "Core Inflation" rather than "Headline Inflation". Headline Inflation is the price of everything, Core Inflation cuts out the volatile commodity prices. We do this because:



If you add in the commodity prices you get answers for inflation that are "retarded" because things like wheat and oil can and do double or halve in a month.

-Username17

FrankTrollman wrote:If you add in the commodity prices you get answers for inflation that are "retarded" because things like wheat and oil can and do double or halve in a month.

I would be carefull about that. While the Fed does look at core inflation to determine policy, the European Central Bank also keeps a close eye on headline inflation as well. Not that I am disagreeing with you; I just don't want to call them "retarded" ... they might be but I just don't want to call them that. You can if you want.

I end up listening to a lot of bullshit from people who apparently don't understand it either, because they all disagree with each other, and who can't explain anything in simple, clear words.

And you're asking us to explain it?

The ECB would rather that Portugal go into default than allow inflation in Germany to rise to historical norms. I'm willing to call them retarded.

At the end of it, Germany isn't even getting a better longterm borrowing rate than the US, so all the austerity ad pain in Southern Europe hasn't accomplished anything.

-Username17

Psychic Robot wrote:

I end up listening to a lot of bullshit from people who apparently don't understand it either, because they all disagree with each other, and who can't explain anything in simple, clear words.

And you're asking us to explain it?

Again, just brilliant.

FrankTrollman wrote:The ECB would rather that Portugal go into default than allow inflation in Germany to rise to historical norms. I'm willing to call them retarded.

That's not the aim at all, the aim is to force them into a massive wave of privatization.

Government has redefined their rules for inflation/CPI 8 times, and every new definition gives an even lower number for inflation. That's not random, the government/Fed, as the primary creator of inflation, is strongly motivated to cover that up.

They use all sorts of positively ridiculous methods to show there's 'very little' inflation. There's 'hedonistic value' that is basically pure crap; as an example, a 2011 computer, that runs 10% faster and costs 20% more, should be worth "twice as much" as the 2010 computer according to the government, so even though the price went up, the government says the new comptuer is worth twice as much, and thus computer prices 'dropped' 80%...even though you're paying 20% more.

Similarly, the numbers go from year to year. For example, if you buy chicken and pork, each at a $1 a pound, and suddenly pork now costs $2 a pound, then, well, the government assumes you'll no longer buy pork, and only buy chicken...thus, no inflation.

The next year, pork is $2 a pound, and chicken $1 a pound. If chicken goes to $2 a pound, well, now the government assumes you'll only buy pork, and since pork didn't go up that year, there's once again no inflation (even though you're paying twice as much as before). Of course, that was back when 'food' was something the government thought people needed, now food isn't part of the inflation calculations.

You're better off going to shadowstats.com to get 'actual' numbers that make sense for 'weird' people that need to like, eat and live in places and stuff like that.

There are many reasons for inflation, but ultimately, it's about supply. As the supply goes up, generally the value/price will drop. Water is mostly everywhere, and fairly cheap...gold is rare, and expensive. Demand is also a factor (so that palladium, much more rare than gold, isn't worth as much, as demand is low...still, palladium is valuable).

An increase in supply of money can easily cause inflation. When the Spanish empire conquered the important bits of South America, all the gold and silver brought back to the country caused massive inflation, destabilizing the country's economy.

For a current example in the US, as the supply of dollars increases (due to fiat printing by the Fed, especially the 'quantitative easing' progroms going on now), the value of those dollars drops, eventually.

The price George Washington paid for a loaf of bread was the same as Lincoln was the same as Taft...centuries where prices didn't change (outside of short term circumstances like war). Once the Fed got involved in printing money from nothing, that's when inflation began, and will continue with each 'quantitative easing'.

What you pay for bread is more than what your father paid...and will be less (in dollars) than what your children will pay. Hell, probably less than what you'll pay in 5 years for bread...even though government insists inflation is very low.

Now, yes, inflation does mean your salary will increase, but ultimately inflation destroys everything. If your grandparents saved any paper money at all....95% of its value has been destroyed by inflation. Similarly, you'll probably be able to pass on nothing to your family due to inflation, if you save in dollars.

Doom wrote:The price George Washington paid for a loaf of bread was the same as Lincoln was the same as Taft...centuries where prices didn't change (outside of short term circumstances like war). Once the Fed got involved in printing money from nothing, that's when inflation began, and will continue with each 'quantitative easing'.

I'm assuming you are saying "President George Washington." Prior to the Constitution, when the individual states printed their own money as well as, before the war, a weak congress, there was rampant inflation.

Congress used four main methods to cover the cost of the war, which cost about 66 million dollars in specie (gold and silver).[12] Congress made two issues of paper money, in 1775-1780, and in 1780-81. The first issue amounted to 242 million dollars. This paper money would supposedly be redeemed for state taxes, but the holders were eventually paid off in 1791 at the rate of one cent on the dollar. By 1780, the paper money was "not worth a Continental", as people said, and a second issue of new currency was attempted. The second issue quickly became nearly worthless—but it was redeemed by the new federal government in 1791 at 100 cents on the dollar. At the same time the states, especially Virginia and the Carolinas, issued over 200 million dollars of their own currency. In effect, the paper money was a hidden tax on the people, and indeed was the only method of taxation that was possible at the time. The skyrocketing inflation was a hardship on the few people who had fixed incomes—but 90 percent of the people were farmers, and were not directly affected by that inflation. Debtors benefited by paying off their debts with depreciated paper.[13] The greatest burden was borne by the soldiers of the Continental Army, whose wages—usually in arrears—declined in value every month, weakening their morale and adding to the hardships suffered by their families.

Doom wrote:Now, yes, inflation does mean your salary will increase, but ultimately inflation destroys everything. If your grandparents saved any paper money at all....95% of its value has been destroyed by inflation. Similarly, you'll probably be able to pass on nothing to your family due to inflation, if you save in dollars.

No. Inflation does not "destroy everything". Inflation devalues only two things:

1) Cash
2) Debt

Since commodities and equities are valued based on how much people are willing to pay for them, inflation literally cannot affect their value. And as long as your income rises along with inflation, your current job can't be devalued. The only things that inflation "destroys" are biscuit tins full of $20's and long-term fixed interest debt (like mortgages, CD's, and bonds), and only if inflation rises faster than the interest of the debt.

You're right that inflation statistics get massaged so that businesses can chip into your actual value by giving you reduced COL bonuses. But inflation only "destroys" value if you pretend that hard cash and zero-interest loans are "investment" rather than an exchange medium.

Doom wrote:They use all sorts of positively ridiculous methods to show there's 'very little' inflation. There's 'hedonistic value' that is basically pure crap; as an example, a 2011 computer, that runs 10% faster and costs 20% more, should be worth "twice as much" as the 2010 computer according to the government, so even though the price went up, the government says the new comptuer is worth twice as much, and thus computer prices 'dropped' 80%...even though you're paying 20% more.

What the fuck? Are you actually saying that a $299 iPhone4 is not a better product than the $3995 Dytac 8000 from 1985? Over and above the fact that high end cellular phones cost an order of magnitude less in 2011 than they did in 1985, they also do so much more it's not even funny. I have a cheap as bullshit Nokia that cost an order of magnitude less than that even, and it still lets me store phone numbers, send text messages, and play sudoku. The bottom of the line today is still a better product than the top end was in 1985.

So yes, you do have to account for the fact that people are buying better stuff today than they were in the past. Even if prices of cellular phones had not dropped dramatically even in nominal dollars over that period, people buying iPhone4s is not really the same thing as people buying Dytac 8000s. A device as capable as the Dytac 8000 would not nly fit in your rectal cavity, it might be given away free with a Starbucks club card.

Doom wrote:Similarly, the numbers go from year to year. For example, if you buy chicken and pork, each at a $1 a pound, and suddenly pork now costs $2 a pound, then, well, the government assumes you'll no longer buy pork, and only buy chicken...thus, no inflation.

That's not true at all. The CPI is weighted by how people actually spend money over a three year period. So if chicken gradually gets less expensive and pork gradually gets more expensive, then people will gradually jump ship from pork to chicken (as they did historically), and the CPI will gradually put a larger weight on chicken and it will even out. If pork suddenly gets more expensive and chicken suddenly gets less expensive, then the CPI will still be weighting pork based on how people bought it three years ago even though in reality they are buying a lot less. This shows up as a blip in inflation that is not really reflected in reality. If the prices stay divergent, then Chicken at the dropped price will become a larger and larger chunk of the weighted shopping list as the years when people bought a lot of pork fall off the back of the truck. This shows up as unrealistically low inflation as the CPI catches up to what people are actually buying.

But the statistical shell game is not universally reporting low inflation. The consumer pattern changes actually cause reported inflation to be higher at first and then lower afterward. If prices and spending patterns change rapidly, the inflation stays over reported, because the things that are cheap that people buy preferentially are always given a low weight in the index because people didn't buy a lot of them last year or the year before; while things that are expensive that people avoid are weighted highly because people used to buy more of them.

-Username17

Isn't the technology problem an apple orange comparison anyway? We can go on all day comparing the price of the horse to the price of the model T and not really be talking about inflation at all. In order to measure inflation you need to compare the same thing over time; even then it can drastically change over time in terms of how it is made and manufactured.

Consider the humble apple. An apple is an apple is an apple (assuming we are not talking about geneticly modified apples) but if transportation costs are low then the imported apple competes with the domestic apple and lowers the price. On the other hand you could suddenly have a craving for "organic" apples - limited in supply thus with an increased price. Neither of these examples is inflation.

Consider Product 1.0 - Release 1. Since the product has hyped for several months there is already pent up demand. Since it takes a while for the system to reach full productivity, supply is low. The price for the item will inevitably spike at first and then lower as the pent up demand diminishes. This too ain't inflation.

The technological situation has no impact whatsoever with inflation. As things become more powerful, we set our own internal expectations to the new level of power. Other than the "it's cute" no one would be interested in my old Atari ... at any price!

Doom wrote:For a current example in the US, as the supply of dollars increases (due to fiat printing by the Fed, especially the 'quantitative easing' progroms going on now), the value of those dollars drops, eventually.

The problem with not doing QE is that with fractional banking a wave of defaults like in this crisis will decrease the supply of dollars (this is true even with gold convertibility, gold convertibility only ensures a relatively equalized global growth/decline ... the roaring twenties saw massive money supply growth across the world though). Which could increase interest rates and further reductions in consumption / investment and thus set in a deflationary spiral.

(sorry, double post)

FrankTrollman wrote: What the fuck? Are you actually saying that a $299 iPhone4 is not a better product than the $3995 Dytac 8000 from 1985?

Apples and oranges there. I'm saying a $299 iPhone4 sells for $299. I'm saying a $3995 Dytac 8000 in 1985 sold for $3995 in 1985. Going back over a quarter of a century is taking things a bit far, inflation calculations are not 25 year spreads.

The part that is ridiculous is that the government is saying the $299 phone in 2011 is actually worth $600 (or $60,000, or whatever number they want it to be) in 2011, due to hedonistic value. A price is being attributed to a product that is not the price on the product.

A loaf of bread in 1805 is a very different product than in 2011, also, and it similarly makes little sense to talk about how much better (?) bread is nowadays, when the issue is what used to sell for 2 cents now sells for $2.

That's not true at all....This shows up as unrealistically low inflation as the CPI catches up to what people are actually buying.

Yes, my example was not using actual numbers/calculations, but we do agree on the end results.

It may be worthwhile to read this.

MFA wrote:The problem with not doing QE is that with fractional banking a wave of defaults like in this crisis will decrease the supply of dollars. Which could increase interest rates and further reductions in consumption / investment and thus set in a deflationary spiral.

Seeing as QE failed (thus we have another QE), and the deflationary spiral didn't happen (although folks at the top got much, much, much, richer), I'm hard pressed to buy into this 'doomsday' scenario of deflation. On the other hand, the rich getting much much richer did happen, so, yeah, let's try not using QE again.

Doom wrote:Apples and oranges there. I'm saying a $299 iPhone4 sells for $299. I'm saying a $3995 Dytac 8000 in 1985 sold for $3995 in 1985. Going back over a quarter of a century is taking things a bit far, inflation calculations are not 25 year spreads.

The part that is ridiculous is that the government is saying the $299 phone in 2011 is actually worth $600 (or $60,000, or whatever number they want it to be) in 2011, due to hedonistic value. A price is being attributed to a product that is not the price on the product.

That would be pretty ridiculous. Fortunately, that's not actually how it works.

Bureau of Labor Statistics wrote:Is the use of "hedonic quality adjustment" in the CPI simply a way of lowering the inflation rate?
No. The International Labour Office refers to the hedonic approach as "powerful, objective and scientific". Hedonic modeling is just one of many methods that the BLS uses to determine what portion of a price difference is viewed by consumers as reflecting quality differences. It refers to a statistical procedure in which the market valuation of a feature is estimated by comparing the prices of items with and without that feature. Then, for example, if a television in the CPI is replaced by one with a larger screen and higher price, the BLS can make an adjustment to the price difference by estimating what the old television would have cost had it had the larger screen size.

Many of the challenges in producing a CPI arise because the number and types of goods and services found in the market are constantly changing. If the CPI tried to maintain a fixed sample of products, that sample quickly would shrink and become unrepresentative of what consumers were purchasing. Each time that an item in the CPI sample permanently disappears from the shelves, the BLS has to choose another, and then has to make some determination about the relative qualities of the old and replacement item. If it did not--for example, if it treated all new items as identical to those they replaced -- significant upward or downward CPI biases would result.

Critics often incorrectly assume that BLS only adjusts for quality increases, not for decreases, and that hedonic adjustments have a large downward impact on the CPI. On the contrary, BLS has used hedonic models in the CPI shelter and apparel components for roughly two decades, and on average hedonic adjustments usually increase the rate of change of those indexes. Since 1998, hedonic models have been introduced in several other components, mostly consumer durables such as personal computers and televisions, but these newer areas have a combined weight of only about one percent in the CPI. A recent article by BLS economists estimated that the hedonic models currently used in the CPI outside of the shelter and apparel areas have increased the annual rate of change of the All Items CPI, but by only about 0.005 percent per year.

Doom wrote:Seeing as QE failed (thus we have another QE), and the deflationary spiral didn't happen...

Wait. The purpose of QE was to prevent a deflationary cycle. Critics of the policy warned that it would send us into an inflationary spiral. Since neither inflationary nor deflationary spirals happened, it seems much more likely that the Fed was right and the gold bugs were wrong than the opposite. I'll say that QE was insufficient, because unemployment is still high and inflation is still below 2% and interest rates are still slammed against the zero lower bound. But to say that it "failed" when the thing it was supposed to stop didn't happen is pretty much crazy talk.

Doom wrote:It may be worthwhile to read this.

Whoa! Your crazy conspiracy theories are showing. That site is claiming that inflation was seven percent higher every year between 1993 and 2004 than actually reported. I actually lived through the late 90s, and you know what didn't happen? All prices and wages rising to 250% of what they were at the end of the Bush administration. I totally would have noticed that.

That's not even me doing a reductio on him, he literally says that SSI payments should have doubled on top of the inflation adjustments that actually happened. That's insane. The rest of the site claims we were running inflation rates of 6% and more all the way through the 21st century. That's not true either, because again, I totally would have noticed prices doubling during the Bush Administration. Gasoline prices very closely match the BLS statistics, and don't match John Williams' crazy statistics he made up at all.

-Username17

Thing is, you're quoting the bureau for their explanation for why hedonistic values don't do exactly what they empirically do. I mean, c'mon, "powerful, objective, and scientific". Jeez, you're better than that. Hysterically, they finish up with "a recent article by (our) economists estimated..." You know it's bad when the only way they can support their claims is when they use their own employees to support their claims. Remember what happens when a police department investigates itself for wrongdoing? Same thing.

There's nothing wrong with getting BLS's alibi I suppose, but I'd take their excuses with a grain of salt. It's much like asking a pedophile to explain that what he was doing with those little boys was all consensual even as the blood covered naked boys are all crying their eyes out; I'm not sure such an explanation should be taken as necessarily the truth.

Wait. The purpose of QE was to prevent a deflationary cycle. Critics of the policy warned that it would send us into an inflationary spiral. Since neither inflationary nor deflationary spirals happened,

Granted, hyperinflation didn't happen, but inflation sure did. Since QE, my $2.50 a 6-pack sodas are now $4...my $5 jambalaya is $6.50...My $800 dental crowns now cost $1200...my $20 co-pay is now $25 (and premiums are higher, too)...my $100 piano tuner now charges $150...my $250 pressure washer guy now charges $300...my $10 pizzas are now $15--and there's also no free delivery anymore, due to gas prices so high. My cost of materials to repair some termite damage doubled due to the material prices, well, doubling. This is just naming a few things that lately are absolutely more than they used to be.

I won't call that hyperinflation, but none of those prices strike me as lower than before QE. I mean, I use textbooks that are only a few years old, and the prices they use for examples are already dated.

On the other hand, the beneficiaries of QE (banks, mostly) have all done stupendously. Stupendously, indeed, big time. To go from near bankruptcy to handing out 10 billion in bonuses is pretty good, eh?

it seems much more likely that the Fed was right and the gold bugs were wrong than the opposite.

Right about what? Preventing deflation? I suppose, but I maintain prices are noticeably higher now than a few years ago. It should be noted gold has also gone up a buck or two in price, silver too...as has most everything that's priced in dollars, so I'm a little reluctant to say the gold bugs are wrong.

In this year, grains, hogs and copper are all up 30%, or more. Cotton is up over 100%.

Say, help me out here, can you name a commodity that HAS dropped 50% in price since QE? To get 2% inflation, something must be dropping, right?

Let's have some other folks chime in. Anyone notice any prices going up? Down significantly?

I'll say that QE was insufficient, because unemployment is still high

Indeed, close to 20%, or under 10% if you buy government numbers.

and inflation is still below 2%

Which of those price changes above are only 2% higher for you? Again, believe the pedophile, or believe the directly observed evidence.

and interest rates are still slammed against the zero lower bound.

Agreed, the Fed is really stuck here. They're practically giving money away to their friends at these rates. Doesn't do me much good, or anyone else that reads these boards, however, and folks on fixed incomes are totally screwed.

But to say that it "failed" when the thing it was supposed to stop didn't happen is pretty much crazy talk.

Fair enough. I'm now going to blow my ghost whistle. When I do this, it keeps ghosts from hurting you, so I'm doing it to protect you. The scientists I hired to tell me the ghost whistle works assure me the ghost whistle works, and they use powerful, objective, scientific methods. *tweeeet*

Seeing as you haven't been attacked by ghosts, will you send me some money now?

No? Wait, were you not really worried about the ghosts?

In a similar vein, deflation doesn't worry me much either, and the actions being taken to 'prevent' this horrible ghost, er, deflation from manifesting really aren't doing me any good.

I actually lived through the late 90s, and you know what didn't happen? All prices and wages rising to 250% of what they were at the end of the Bush administration. I totally would have noticed that.

I lived through the 90's, too. I used to go to Taco Bell and get tacos 3 for a buck (well, 6 for $2, because that was lunch). Now they're $1 apiece. Bought a car for $6k...a comparable one today would be $18k, easy. I used to walk down to the Quarter and get a $5 sandwich at a high end restauarant. Those are $15-20 now. Gas was under a buck a gallon in the 90's...it's well over $3 now. I could rent a house for $600...well over a $1,000, now, and that's with the 'collapse'. I used to get sodas out of vending machines for a quarter in the 90s...more like a buck, now. M:TG boosters used to be $2 in a store if I recall correctly, they're $4 now, so I'll grant not *everything* has tripled but lots has gone up alot. Just because you didn't notice it, doesn't mean it didn't happen, I'm afraid.

Look, I'm not saying Shadowstats is 100% accurate about everthing, but to blindly trust government numbers seems foolish, especially in light of just how many times the government has been 'wrong', to put it very politely, in the past.

tzor wrote:I'm assuming you are saying "President George Washington." Prior to the Constitution, when the individual states printed their own money as well as, before the war, a weak congress, there was rampant inflation.

Congress used four main methods to cover the cost of the war, which cost about 66 million dollars in specie (gold and silver).[12] Congress made two issues of paper money, in 1775-1780, and in 1780-81. The first issue amounted to 242 million dollars. This paper money would supposedly be redeemed for state taxes, but the holders were eventually paid off in 1791 at the rate of one cent on the dollar.

Good, note how it's the paper money causing the inflation.

. In effect, the paper money was a hidden tax on the people, and indeed was the only method of taxation that was possible at the time. The skyrocketing inflation was a hardship on the few people who had fixed incomes—but 90 percent of the people were farmers, and were not directly affected by that inflation. Debtors benefited by paying off their debts with depreciated paper.[13] The greatest burden was borne by the soldiers of the Continental Army, whose wages—usually in arrears—declined in value every month, weakening their morale and adding to the hardships suffered by their families.

Yes, paper money is disastrous for inflation...but the inflation was for paper money, not for hard currency, which is why the Constitution specifically says the only money should be gold and silver. When the (bogus) paper money was taken out of circulation, prices went back to where they were, at least for folks paying with hard currency.

Do note that's not much different than what is happening today. The silver in a mercury dime of 50+ years ago when gas was 10 cents a gallon comes close to paying for a gallon of gas in today's 'money'.

PoliteNewb wrote:F***ing economics, how do they work

One of the things people generally aren't talking about so far in this thread is the Ratchet Effect, where prices will go up much more easily than they will go down. This has the effect of obfuscating the effects of inflation even further.

Incidentally, is there anything at http://en.wikipedia.org/wiki/Inflation which was unclear or confusing? I found it quite succinct.

echo

Wikipedia: Inflation wrote:Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.

Does this mean that as more people become part of a country (through immigration and/or birth), inflation will naturally occur as the money supply and economy both expand?

Keyword is "excessive", and I imagine a precise definition of 'growth' would have something about 'relative to the wealth of the country', with 'wealth' having some nice weaselly definiton.