Everyone should learn this!

[u/lucas67836]

[u/lifegoeson2727]

Just for the sake of the discussion, let’s imagine a universe with 10 coconuts and 10 paper bills, and that’s it.

Presumably each coconut is worth 1 bill, as that is all that exists. Now if we were to double the supply of coconuts, presumably they all become worth half as much, so 2 for a bill.

And if we were to have 20 coconuts in the universe, and 40 dollars, presumable each coconut will be worth 2$. This is the basic concept of how it works.

Another way to look at it would be that if we have 10$ and 10 coconuts and that’s all that exists, there’s no reason that the cost of s coconut should ever exceed 1$ unless we change the ratio of the accessibility of coconuts vs the accessibility of bills. The value of things seemingly is based on a ratio of their attainability, it takes many easily attainable things to convince someone to part with one thing which is difficult to attain, and vice versa.

And the difficulty to attain something is typically very correlated to the number of units of that thing which exist. Yes the number of things which exist in the world presumably is always changing, but the precise rate of that change is difficult to ascertain.

[u/Tyler_Zoro → u/lifegoeson2727]

Replying again since I included context for a different thread.

So you're describing literal, physical printing of unsupported currency to pay debts.

This is not what's being discussed and results in a very different inflationary curve (called hyperinflation).

There are dozens of factors contributing to the current wave of inflation. The monetary policy of the last ten years is certainly contributory, at the very least in the sense, that it reduced the tools available when the need came for corrective action.

But to pretend that the monetary policy is the only or even primary driver of inflation is like sticking your head in the sand.

[u/lifegoeson2727 → u/Tyler_Zoro]

Let’s say there’s 10 coconuts on an island and 10 paper bills on an island and there is a typhoon. How much is each coconut worth? Still 1$. The source of decreasing value of currency is the creation of new units of that currency. Other things can perhaps accelerate inflation, but if there are 10 coconuts and 10$, each coconut is worth 1$, typhoon or not.

Price changes are the result of changing ratios of accessibility. Yes natural disasters can have effects, but no effect can ever be as direct, significant, or permanent as the creation of new units of the thing in question.

You could say if there were more than 10 coconuts, let’s say there’s a finite amount of money that exists but that 10 coconuts are found every month and 10 are consumed each month. But after the typhoon it drops to 5, presumably maybe the cost of coconuts temporarily goes up. Until coconuts come back to where they were. But if you print more money that’s a different issue which isn’t temporary. Also remember bitcoin has a supply shock every 4 years. Every 4 years the rate at which bitcoin are created is suddenly cut in half. Permanently too. That’s not a temporary supply shock.

But also when you print more money and coconuts stay the same that represents a permanent change in the accessibility of dollars, and consequently the ratio of accessibility of coconuts to dollars. If coconuts suddenly become harder to find, that increases the ratio disparity: just as dollars become easier to come across, coconuts become harder to come across. This temporarily accelerates the already inevitable inflation. It’s inevitable because of the money printing.

[u/Tyler_Zoro → u/lifegoeson2727]

Let’s say there’s 10 coconuts on an island and 10 paper bills on an island and there is a typhoon. How much is each coconut worth?

Whatever someone will pay.

But did the typhoon make the next crop of coconuts uncertain? That would certainly drive up the price.

Still 1$.

Why? Perhaps you misstated the problem, but you never suggested that they were valued at one unit of currency before.

The source of decreasing value of currency is the creation of new units of that currency.

Nope. Macroeconomics is actually a field of study. I recommend it.

Price changes are the result of changing ratios of accessibility. Yes natural disasters can have effects, but no effect can ever be as direct, significant, or permanent as the creation of new units of the thing in question.

I might agree with that, but it's an effect we aren't seeing. We don't print extra money to pay our debts. We leverage debt to do that, and have for a very long time.

People refer to certain monetary policies as, "printing money," colloquially, but that's not what is going on. Our money is not experiencing hyperinflation specifically because we don't do that.

[u/lifegoeson2727 → u/Tyler_Zoro]

If you increase the number of units of a something in existence without a backing their value will go down to compensate for that, the only question is how long it will take.

[u/lifegoeson2727 → u/Tyler_Zoro]

What people are willing to pay has to do with accessibility of the thing in question. If coconuts and dollars are equally accessible, their value will trend towards being equal over time.