The Real Inflation Rate
Written on Dec 28th, 2010
Inflation is technically an expansion of the monetary supply. Prior to the invention of fiat (i.e. paper) money, inflation occurred when pure gold or silver coins were melted down and mixed with less valuable metals. The end result was a coin that was worth less, even though it was the same size, shape and colour. Another form of inflation occurred when people used to subtlety shave the edges of coins off and use that metal to purchase other items. The coins ended up becoming deformed, and had less metal than the used to have, making them worth less. With fiat money, inflation occurs when a country prints additional money and puts it into circulation. The net effect is that people have more money to bid on items, which (due to the Quantity Theory of Money) causes prices to increase (if someone walked into an auction and gave everyone an extra […]
