Because things too, on average, lose value over time when materials degrade and better models come out. Inflation saves the trouble of reducing the old price.
I just wish the new models were better than the old ones.
It feels like you’re asking what value is. Value is a sentiment that depends on many factors but it eventually decomposes to some utility factor. You could argue that water is not valuable because it is abundant but that depends on context. In the desert it becomes extremely valuable for people to live. It’s difficult to make a numerical assessment of value and measurement implies a level of precision and universality that is inappropriate. We estimate value based on contextual factors such as supply and demand. It’s not a great way to assess it but better than nothing.
I’m always pleased when I buy stone construction materials because they deliver 1000kg of material and it only costs £20. I don’t know of any other material that is seemingly so abundant, inexpensive and useful. I’m not convinced I would feel the same way about a tonne of gold, aside from the scarcity. Maybe I would make a gold toilet and get x amount of fame on social media, that’s apparently extremely valuable.
Good perspective. I like the concept of marginal utility and scarcity.
I need to hammer a nail, I get one hammer, I hammer the nail successfully. The hammer was very valuable to me.
I get another hammer, it’s not nearly as valuable as the first hammer unless my first hammer breaks.
I give the hammer to someone else who needs to hammer a nail, they hammer the nail successfully. The hammer was very valuable to them.
I didn’t know it had a name but marginal utility sounds like the concept behind the early form of eBay, before it became a corporation. You can still find people giving stuff away on there but that sort of exchange has now moved to places like Freegle, Freecycle and Facebook Marketplace, to a lesser extent. What people value has always been a mystery to me, I would be horrible in business. Most of my decisions are pretty much utilitarian, aside from food and drugs. I am happy in a junk yard, salvaging materials and components, that stuff feels under utilised and valuable to me.
Because value itself is arbitrary. It’s not like time or physics. Value is not an inherent property of the universe.
Nothing has constant value
Yea nothing is constant I know. Asking more like why don’t we measure the value of things with someone that holds its value better like gold? It’s physically scarce and cannot be manipulated because it’s verifiable at an atomic level, and will always be in demand.
Everyone used to tie their money to gold. Not anymore.
https://www.npr.org/sections/money/2011/04/27/135604828/why-we-left-the-gold-standard
https://www.stlouisfed.org/open-vault/2017/november/why-us-no-longer-follows-gold-standard
I’m not saying we should have a gold standard again, there were obviously bad downsides. I’m questioning why we measure everything in money which loses its value over time due to inflation. Can’t we measure things in something that has a more stable value while also not having a gold standard?
But what’s the point in having an extra conversion? Like this would take extra effort and need to regularly be updated as the price of gold vs the local currency changes so there would have to be some advantage. Like having the price change over time is annoying but because your income and expenses are both tied to the same thing ideally it shouldn’t cause any thinking (it hasn’t because income hasn’t kept up with inflation)
Gold can be manipulated. Reserves can be made available or unavailable by the wealthy. You can also have supply shocks if new reserves are discovered.
Also, most banking problems stem from issues with the reserve ratio affecting the money supply. That doesn’t go away with a gold backed currency.
I’m not saying we adopt gold as a currency, I’m thinking we should try using it more often to measure the value of things. I’m considering working on a web application that allows users to easily determine the price of something in gold by weight. It’s a fun thing to think about. Even with supply shocks from a new reserve, that is absolutely nothing compared to the inflation of the money supply.
It would only really be a thing after the depegging of the dollar after 1970.
What for?
Because this way you’ll never know if it’s just inflation or an ever growing markup.
If money became worth more over time, there’d be an incentive to hoard it, which in turn would make it scarcer in circulation and worth more. Of course it’s more complicated in real life, and the cycle would eventually break, but that’s the gist of why deflation (what that is called) is seen as a bad thing.
Minor inflation is pretty harmless. Exactly 0 change in the value of money might be good too, but it’s right next to deflation. So, the usual target amount is a percent or two of inflation per annum, to be safe. Central banks achieve this primarily by lending money out, at a higher or lower rate of interest as conditions demand.
It does become worth more if you hoard it. They call that interest.
No, you have to lend it to someone else for that, who probably spends it. And it never really matches what it would be doing if invested, and if it’s something like a savings account the interest you earn might even be less than the inflation rate. There’s a whole logic to this.
Collection of interest and profit from investments definitely are included in the reasoning of central banks.
You’re on to something: the 2% inflation target is just an arbitrary value.
It means your salary is constantly going down for doing the same work - you have to stay on the treadmill just to stay in place.
But if you’re an asset holder then the prices of your holdings appreciate indefinitely, and governments get the power to levy this constant invisible tax on the workers.
Mark Blyth is an expert on the topic: https://youtu.be/GXBSNCysxiA
There’s no such thing as an objective measurement.
Every single measurement we have is relative to something else.
Also having a measurement to something we use every day is a good thing. Like that’s the price of the object. You can look at the price of the things 50 years ago. People aren’t writing down random calculations to measurements in different arbitrary units just to record that pointless data point for someone in the future to use.
Because it’s convenient to trade said object for that something instead of carrying around a scale and silver pieces.
Also I’m not sure how much the previous metal prices fluctuates but currency may just be more stable.
Value is subjective. Everyone values different things, and to different degrees.
banana for scale
Cause it allows you to have a Ponzi scheme in which you always assume the future will be more prosperous.
If money loses its value, that puts pressure on people with money to use it and try to turn it into more.
So unless your willing to lose money due to inflation, you HAVE TO get a return on your investment, thereby ensuring perpetual growth.
It works well when there is tons of room to grow, but then it all falls apart when you run out of that.
Once that happens, you just keep increasing the money supply, allowing capital holders to increase at a faster rate than workers. Even though workers “make more”, they have a smaller share of the pie.
Objectively, I’d say its about Relativism.
An even more concerning question to me is why shops charge jeff bezos the same amount for something as a homeless guy. His money is clearly worth much, much less, being 99.999% stolen, and should be treated as such.
What if inflation isn’t about the money losing value, but you having access to more money and thus spending it more frivolously?
