How is inflation good? It devalues the currency and in the current arrangement (if am correct) a time will come when Kshs 100. Will be needed to buy a sweet . . I honestly don't see how this is good . As I understand , money is not treated as value but as a tool of debt and means of managing percieved wealth. The problem is that the money is exchangeable for true property / wealth . . .and if what ave read about how money is created, then they(the banks) create it out of thin air and offer it against your real property(house car etc ) Am jus sayin On 5/24/10, Phares Kariuki <pkariuki@gmail.com> wrote:
Controlled inflation is good for the economy, as it spurs investment...
On Mon, May 24, 2010 at 3:47 PM, Davis Waithaka <daviswaithaka@gmail.com>wrote:
@Ndungi
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. 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).
If we had 1 trillion shillings in circulation in 2009 and the economy produces 1 million loaves of bread then the price is 30/= for bread If we have 2 trillion shillings in circulation in 2011 and the economy then produces 1.5 million loaves of bread then the price will be ~38/= (remember there are other products being manufactured or services delivered and they are probably also growing with new ones entering hence affecting demand for bread etc)
Davis
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