Re:Why inflation is not a threat
by simonh on Sunday March 14, 2021 @12:21PM
(#26456531)
A lot of excellent other answers, so I hesitated to chip in but I think there is a useful way to think about this.
If the unit of exchange was always physical gold coins then yes, there would be a finite amount of money. However the moment we turned to promissory notes, cheques, bank notes and financial instruments such as in fractional reserve banking the link to physical gold was a fiction. Such notes have been around a very, very long time although of course increasing in prominence over time.
It was a fiction even for precious metal coins as well because the moment a government started running low on the metal, or just wanted to inflate it's currency, it would just debase the coins.
If the unit of exchange was always physical gold coins then yes, there would be a finite amount of money. However the moment we turned to promissory notes, cheques, bank notes and financial instruments such as in fractional reserve banking the link to physical gold was a fiction. Such notes have been around a very, very long time although of course increasing in prominence over time.
It was a fiction even for precious metal coins as well because the moment a government started running low on the metal, or just wanted to inflate it's currency, it would just debase the coins.