Inflation. Why We Have It and What It Does.

"When a fine house cost twenty thousand dollars, an annual salary of ten thousand dollars wasn't bad at all.  But when a run-of-the-mill car costs as much as a fine house used to cost, you high-falootin' salary of seventy thousand won't be nearly as high-falootin' as it sounded when you first began earning it.  A 10% raise is only more when the cost of buying the same crap you've been buying does not increase by 10.763%."

- T. Quidd, p.642, Economics Made Simple.  Murphy's Pub and Publishing Company, Riner, Virginia.  1984.

     I was wondering; what good is inflation and why do we have it?  I think it starts when a bunch of people get a raise, like governmental employees other than the elected ones, when huge employers such as the automotive industry give their working stiffs an across the board raise, or when there’s an increase in the minimum wage.  Then, since more people have a little more money to save or spend, the price of goods and services goes up so the providers of those goods and services can get their share of the new pile of money that’s sitting out there.  Of course, that means those who thought they were coming up in the world a little bit with their income increases very quickly no longer have more money to save or invest because the cost of living, at the same standard they enjoyed before getting more money, has gone up, effectively nullifying their increase of income.  Eventually everybody who can must try to get an increase in their income just so they can keep their heads the same distance above the waterline where they had already been living.  Those who can’t get more money get demoted and become poorer than they used to be.  So far there are no winners, just losers.  Inflation is simply the means by which most people who thought their hard work was starting to pay off with more money can only enjoy having more for a very short time until the cost of living catches up to their raise; and when it does they’re right back where they were.  At best your standard of living will stay the same and you will have more money but it will cost equivalently more to pay for everything.  It’s kind of a game of purchasing power musical chairs.  Those capturing a seat remain exactly as they were and get to continue in the game for another round.  Those not finding a seat are the losers.  They tend to disappear.  Eventually, only one guy is going to win and the only thing you can be certain of there is that the winner isn't going to be you.

     So other than increasing the number of poor, what’s the point?  Actually, I suppose that is the point.