6/8/2022 - Economy and Finance

The history of inflation - Part 1

By agustin arnal

The history of inflation - Part 1

Inflation of the old Rome to the Crypto World

It is not necessary to be an economist (not a brilliant mind, if appropriate) to understand that unless told exceptions - which are also temporary - prices increase over time. In countries such as Argentina, it is normal for a 6-year-old to know perfectly that, each so, the kiosk that sells him snacks in the playground rises prices: he has to ask his parents more silver.

Inflation is a complex fact in terms of economic theory (tranquilos, I do not want to annoy them). But more importantly, it is a very practical phenomenon. You don't just take the economists, you take us all. Doña Rosa can be one of the most exaggerated and correct metaphors that existed: she always buys dollars “to win inflation”.

Is it clear that understanding inflation is essential to avoid the bad that it brings and take advantage of its advantages? So the theme is: how does inflation work?

The Ancient Rome

First, let's see this above: inflation is not a local, rare or new phenomenon. There is evidence that in the Roman Empire there was not only inflation, but it was one of the things that led him to decline and fall.

Inflation in the Roman Empire? How can it be? Sure, man. Inflation was born in Ancient Rome. We all had this class of history (although perhaps not all of us have agreed): the Roman Empire was at the forefront in various aspects of life. An example, most of the right as we know it today is based on Roman law. Like this, the economic organization of Rome was avant-garde and pioneer, with all the good (and the bad) that it means.

The territorial expansion of the Roman Empire meant building paths, paths, defenses, maintaining a huge army, officials. A gigantic apparatus, quite like the modern states, with the enormous expenditure that it implies.

How was this expansion usually financed? Typically, in two ways. The first was the slave labor of conquests (in Creole: the Romans were not advanced at all), and the second was the taxes that charged the entire population, which would be the most similar to what we know today as a private sector. Nevertheless, at some point over 2,000 years ago, not even with it, and the emperors had the brilliant idea to put less and less amount of silver on their coins. This noble metal flooring inside the coin was called Sreaje.

So far, great. I could have more coins to pay for everything the Empire wanted to do without spending. Round business. The problem arose because the amount of things that were produced was practically the same. The account is simple: if there is more silver to turn around, but the amount of goods is the same, the price of goods ends up increasing because people begin to “pel” (economically) by goods. Who knows, maybe some Roman boy has to ask his father for more coins to buy apples during the recreation.

First conclusion, The honourable Member and inflation benefit those who generate it: the States.

United States in 1929

We make a 1900-year fast-forward and land in one of the worst economic crises in history.

The big difference that generated the crisis of ‘30 was that with the huge recession, prices began to fall. A kind of reverse inflation: deflation.

The crack of ‘29 gave rise to one of the best known postulates of Keynesian theory: according to this school, in the face of crisis, public spending (seeing the Roman example, building routes) can help to recover the economy.

The curious thing is that numerous governments have used and use this argument to justify increases in public spending. And, as we saw in ancient Rome, this partly rebounds in Sreaje. In modern states, this is done issuing notes.

The Keynesian school said that this issue had no reason to become inflation since people had expectations that prices would remain stable or lower (in 1929, this was true). The idea that whenever there was a monetary illusion arises. In Creole: although there is inflation, people continue to think as "normal" percentage, without adjustment. In essence, the government has the ability to “engage” the population.

But what happens if the government consistently uses this mechanism? Therefore, expectations in economics are so important. Examples are not missing.

Second conclusion: Governments can take advantage of monetary illusion, at least temporarily.

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agustin arnal

agustin arnal

Hi, I'm Agus Arnal. I am passionate about creating and developing business and solving problems. I believe that the most important minority of all is the individual, and that is why entrepreneurship, finance in general and chryptocurrencies in particular are the three things I live chasing.

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