What Is Inflation? What Causes It? (HISTORY OF MONEY!) (#28)

What Is Inflation? (Basic Definition!)

When the value of every penny decreases as the cost of living increases, then this Economic change is known as Inflation.

History!

If we go all the way back, & discuss 'bout the evolution of money then we'll get the Barter System as the very first means to Exchange/let people buy anything they desired.

So, Barter System was kind of like— one person who have a bag of rice & wants a pair of shoes then that one person have to find someone who is willing to giveaway a pair of shoes for a rice bag.

By just thinking a bit 'bout the Barter System.... you may have already realised, that this wasn't the best way out there to exchange/get things one wanted.

You know it wasn't that accurate & infact, it was very difficult to find such people who were giving away stuff in return of stuff one actually wanted & AT THE SAME TIME, the other person willing to take the same stuff provided by the individual in exchange of som thing he/she's getting.

So ofcourse, soon the Barter System was replaced with Gold & Silver Coins.

So people started purchasing stuff with Gold & Silver Coins.

& there wasn't any issue with this one AS it was with the Barter System.

BUT, the Gold & Silver Coins were very heavy & hard to carry around.

So it was replaced too.

& now we've got Paper Money.

Well, there's a quite INTERESTING story, explaining us how was the Gold & Silver Coins replaced with Paper Money.

So let me give you a quick explanation.... But before that.... I want you to know.... that....

Paper Money is the only thing which within itself.... somehow causes Inflation.... because we know that it has no actual value as such.... Infact, we just BELEIVE it has a value because many others beleive it too & so it does have/gets a value.

Moreover, the MONEY HAS A VALUE BECAUSE has a value because the GOVERNMENT said that it does.... so it does....!

I'll be giving a true explanation 'bout this. 

So how did we came from using Gold & Silver Coins to Paper Money which can be printed as much as one (in power) wants to, regardless of from what it derives its value/ what does it holds!

It'll make more sense now, within a while!

Ok! so at one point in time, people were fed up of carrying around heavy Gold & Silver Coins with them.

So there were these people who created such kind of a thing/deal/system/ or they just came up with such an idea.... in which one can give/submit the Coins & take a receipt which have the value of the Coins (Gold & Silver) which the people have submitted. So it'll basically have the amount written on it!

& that Receipt was the Paper Money!

& sooner, there were soo many people who came to the place & exchanged Gold & Silver Coins to get the Receipts.

& it turned out that everyone started trading/buying stuff using those receipts.

& literally no one was coming to take back their Gold & Silver coins.

THOSE RECEIPTS WERE BEING USED LITERALLY EVERYWHERE BY EVERYONE.

So, you see, the little thing started by just some people— one or two.... was now  used among everyone. THIS WAS SO CALLED THE WORLD'S FIRST BANK!

& due to this kind of— people's behaviour.... those individual's (who started the system....) got a bit greedy.... & they started printing more money/receipts which in this case has no value. B'coz something known as Fiat currency exists.

You know, like — A Derivative derives its value from an underlying asset. & in this case the Derivative is the receipt deriving its value from the gold & Silver Coins.

But NOW, due to greediness, those individual's were now giving away receipts that has no value.

In fact, they were giving away those receipts/money as Loans to earn more in forms of interest. Regardless of it having an actual value.

I'm sorry!

I won't go any further into the concept of "Derivatives", anymore because there isn't anything this topic needs to do with Derivatives, anyways. So it is a very OUT OF TOPIC THING.... & infact there might be many people who are kind of clueless of what it is & it might seem complex.... however, I have articles which explain 'bout Derivatives pretty well.

You may check'em out.... IF YOU WANT TO!

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& now that was the BASIC OVERVIEW of the "History Of Money".... I'll let you know what does it have to do with Inflation now.... within a while.... however, I want to let y'all know that there'll be a complete article solely talking 'bout the Money's History & about Fiat Currency.

Ok,

Anyways,

So coming back to today's reality & also to

What Causes Inflation?

Ok! Well, So in TODAY's reality.... one individual (in power) can print as much money as he/she wants to.... is one of the reasons causing Inflation.

Besides, this.... the Government Policies, the Supply & Demand Rule — the supply & demand rule plays a vital role in causing Inflation Or even Deflation.... & it's not just with the goods.... as Printing Of Money also have something to do with the Supply & Demand Rule & playing a role in Inflation & Deflation.

Ofcourse.... there might be alot of more reasons causing Inflation.... But here, I am just mentioning a few of'em.

I don't know.... if this article have made enough sense to you but I really did tried to be focused on letting y'all know that from where can Inflation be caused, for real.

So that was all in this article.... We learned 'bout.... What Inflation Is.... & a bit bout the.... Money's History & also from that to.... What Causes Inflation?

Thanks For Reading!