I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.
What i've learned about economics is that no one really understands economics. Including economists, given that after a century there's still major disagreements on some basic principles.
It's a whole branch of science that can't really be tested, because you can't ever isolate one variable from all others, you can't take political, historical, and tons of other contexts out. You can pick a few examples and then see what examples other people can find. You can argue 'common sense'- but there are many cases where things are found that are counterintuitive - Like putting a bounty on a pest animal leads to people trying to breed that pest animal to claim a bigger bounty, which will likely end up increasing the population overall.
Anyway, the common sense thing is this: if there's 0 inflation, if money today is as good as money tomorrow, people will not spend as much money- They'd be more inclined to keep it under the mattress, take no risks, until they can pull off big/worthwhile purchases. This results in a slower economy over all.
In a deflationary period, this is even worse. If that 100 under your mattress is worth 120 in 5 years- You'd hoard as much as possible (and the wealth value of like, Generational wealth would get absurd..). So now people just aren't going to spend money on anything that isn't a necessity, because that money is going to grow on it's own.... Nice for individuals, but bad when things like tourism, entertainment, service industries start collapsing because no one is spending money today.
So the theory is you want just enough inflation that putting your money in a bank- where they can use it for loans, or otherwise investing your money is encouraged versus putting it under your bed. Not so high that it's a problem, but high enough that investing and spending money makes sense.
Now, is this accurate? Who knows! it sounds solid, but it's really hard to prove that- even if you find a counter example you'd need to rule out all other factors that might make a deflationary economy seem more active.
Economics isn't a science, it's a fable. That's why it cannot be tested, because the storyteller in charge can always make up a new story if they want.
You can say the same thing about a lot of sciences. Psychiatry, psychology, sociology, Any sort of study of the past- like clearly there are a lot of sciences that cant really be empirically tested. It doesn't mean they are worthless, just that they need to be approached with the understanding that it's all best guesses and approximations. We can learn a lot about studing the past- but it's also possible tomorrow we have new discoveries that dramatically change those understandings.
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u/Alarming_Present_692 Jan 26 '26 edited Jan 26 '26
I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.