@Phares, Please do expound. Am curious to know how it spurs investment too .. @Davis, Remember that money is just a form of transfer of wealth... from my earlier
post. An economy has to have a certain level of money in circulation for us to conveniently convert our wealths. Since our wealths grow (eg a doctor becomes better with experience hence his total 'medical wealth' grows from year to year) (also, the number of doctors is increasing) then we constantly need to keep raising the levels of money - again to ensure convenient wealth conversions.
True dat.
However, the value (wealth) locked in one particular item in the economy,
eg a loaf of bread remains constant. Thus, when you raise the money in circulation and try to price the loaf of bread, its price shifts. If the increase in money circulated is higher than the loaves of bread increased, then the price might rise naturally (inflation) whilst the reverse might also be true (deflation).
Did you notice something ? Inspite of the doctor's amassed `medical wealth` he can only afford, roughly, the same loaves of bread he could afford 10 years ago when he wasnt as wealthy as he apparently is, thanks to inflation. (In fact, its a slightly worse in Kenya and the 3rd world, lakini hayo na siku nyingine.) Inflation is then making a mockery of the doctors' sustained hard work : It is simply assuring the doctor that he will never be able to afford (an arbitrary) 100,000 loaves of bread, irregardless of how much he earns and saves. Because the harder he works, the more the money will be pumped into circulation, and at the same rate the price of bread will rise. Joe's analogy of a cow today `becoming a goat` tomorrow then becomes true. Isnt that what happens to savings ? The exception though, is the person who happens to make an extremely large amount of money in a very short time. With this one, inflation doesnt catch up. I wonder by what means is it possible to make such a large amount of money in a short time ? My 2 cents ( will be 1.25 tomorrow ;-).