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Inflation-Deflation And The Origins Of Money

Written by | November 27th, 2008
This is a subject that has been of much interest to me lately; in particular, due to the situation that  we are currently experiencing in this country. I suppose, to some extent, we are all learning a bit more about economics, these days, then we may have liked. However, as with many other things, knowledge is often very powerful.
 
I think that the best way to start out, without getting overly complicated,  is to start with some basic definitions; this definition on inflation looks pretty good. http://en.wikipedia.org/wiki/Inflation
 
Common sense tells me that deflation is the opposite of inflation, however, here is the definition of deflation.
http://en.wikipedia.org/wiki/Deflation
 
After reading about inflation and/or deflation, it is also interesting to learn a bit about the history of our currency. http://en.wikipedia.org/wiki/Inflation#Origins
 
Today’s currency system, in The United States, is based on a fiat system.
http://en.wikipedia.org/wiki/Fiat_currency 
However, this was not always so…
 
In fact, throughout most of history, currency was backed by, and used gold and other precious metals as currency. http://en.wikipedia.org/wiki/Inflation#Gold_standard
In it’s basic form, paper money represented, and was proportional to a certain amount of available gold.
 
Some are even lobbying for us to go back to this system; I see some real validity to going back to a system as to where there are actual tangible items to back the paper notes that are being printed. In the old days, the barter system was a valid way for people to survive, and do commerce; that is certainly another subject for another day.
 
I think this is a good (basic) starting point for anyone that is interested in getting deeper into the immense subject of Economics.
 
Mark
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4 thoughts on “Inflation-Deflation And The Origins Of Money

  1. resqr1968

    It is critical to not paint with broad brushes when discussing these things. Neither inflation or deflation are always an evil thing. Both are needed to help regulate economies swings. The biggest key to how they impact society as a whole, is in the items that are changing. Common every day items experiencing inflation or deflation, like milk, bread, gas, etc. have a more direct impact on the society's economy than does say lawnmowers, surfboards, etc.

    Some areas of the economy can have huge swings & it not impact society at all. It is in the normal goods that the swings & their intensity impact our households the most. A 5% increase or decrease on a surfboard will have a much different impact than the same on a gallon of milk.

    When averages are computed, everything gets thrown in, which can make the situation seem like it should feel better or worse than the real impact to wallets.

    Reply
  2. markross Post author

    Resqr,

    I am certainly not an economist, however, it is becoming of more interesting to me, lately.

    Your points are very good; it is unlikely that the price of a surfboard will not have any major consequences, on our economy, however, what do you think about gasoline?

    Gasoline, today, effects all aspects of commerce and the ability to deliver goods, and other commodities.

    I often wonder if the crazy gasoline prices, and the government's inability to get it under control, was the tipping factor; what do you think?

    Mark

    Reply
  3. resqr1968

    Mark,

    You aren't? I keep giving you too much credit, I gotta stop that. :) I wonder if it's too late to recall my nomination for you on the Nobel Prize.

    Tipping points:

    Crazy gas prices-Yes. And was previously reported on, and fell to deaf ears.

    http://www.msnbc.msn.com/id/24778287/

    Inability? If that's what you would like to call it.

    Inability- n. lack of sufficient power, resources or capacity.

    I'm not aware of a governmental power greater than Congress, which possess a vast capacity of resources like no other on this earth. This is probably why so many Americans kept saying, 'God help us'.

    Congress knew & once again items were ignored, derailed, or terminated. Inaction is how I perceive it.

    Inaction-n. lack of action or activity.

    What has changed to allow the prices to suddenly fall? People have started making the choice between putting food on the table or cutting back on driving? To a certain degree, but if that were really what was driving the costs down, entertainment & luxury industries would be going down as quickly as the banking industry, in my opinion. And fact of the matter is, they're not.

    If people can still afford to go out for entertainment, they are probably not making the significant cutbacks at the pump that would suggest it is responsible for the decreased pricing.

    I know you like voting records. Here is a link to check out what bills are in process, by whom & who is sponsoring them. I scrolled through & didn't find any that jumped out at me, regarding the price of crude oil. I could be wrong though, let me know if you find any that actually made it to the floor. Feel free to keep this link handy for the future.

    http://www.senate.gov/pagelayout/legislative/b_th

    Resqr

    Reply
  4. markross Post author

    "I wouldn't go that far" LOL

    However, I think that it is a Pulitzer Prize that you meant to say?

    Give me a few more years : )

    —-

    Reqr,

    Now that is what I like! Perhaps you'd be a very good investigative journalist. The hardest part, admittedly, is to keep personal feelings out of it, publicly, and to lay out the facts, for others to see.

    You raise a great point! That is, why are other "so called" luxuries, like entertainment, not going down? I have not looked into it, however, I do trust what you say.

    Also, good job, looking up the word "inability", that is certainly "not" the proper word. I am not one that is "too" into conspiracy theories, however, as you noted, from the above link, there is likely not one vote on the regulation of the gas giants.

    I have been saying it for two years now; if gasoline prices do not change, it is going to break the very backbone of our economy. It is so inconceivable how the large oil giants were making windfall profits, while the common people are down here, struggling, and paying for two wars. Without knowing some actual facts, I would go as far as saying that there was a vested interest, for many politicians to not tip the apple cart, in this case.

    There are many factors involved, as we can see, however, the "inaction" of Congress, on this issue, certainly has caused a tremendous strain on the economy. If we want to go into the realm of speculation, how about the possibility of economic terrorism? What better way to bring The U.S. to their knees, then to destroy it's economy? Scary thought, huh?

    Someone, the other day, was saying to me that they believe that Paulson, and some others, are taking us for a ride, with these doomsday scenarios; leaving a certain few owning all of the country's wealth..another scary thought, for sure.

    I'm not sure that I totally buy it, however, it is something to keep in the back of our minds, as we watch billions being tossed these largest institutions; and "selectively", I might add.

    I will certainly revisit the above link, as needed.

    Thank you!

    Mark

    Reply

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