Thank you for not answering my questions.
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Originally Posted by NoDrama
So he uses perishable fish, Dollars are made of paper and are perishable also.They burn easily and if left to rot outside will decompose quite readily. Precious metals are the ultimate money. Its just an example because its very easy to understand.
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I just found it funny that he used the MOST perishable item to serve as currency. Coupled with the fact that the currency is consumed and replenished daily. Not well thought out IMO. But whatever I get what he was trying to say.
Quote:
Originally Posted by NoDrama
If everyone fishes, then there is MASSIVE inflation as there will be 100,000 fish for each loaf of bread. But that would not happen its not possible, markets will find equilibrium. Half will bake bread and half will fish if those are the only choices, in which case there would be no inflation. If everyone bakes bread there would be massive DEFLATION, as the Fish would become worth more and more bread. So just adding people into the mix does nothing to inflation , only creation of money can affect it.
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This is oversimplified because we know that there were more products than loaves and fish on the island. But assuming that the population is equally allocated across the sectors the below statement will ring true.
If half - 50,000 people catch 2 fish per day and 50,000 bake 2 loaves of bread per day and fish is "money" then the money supply has increased by 50,000 times from when it was just two guys!!! It went from 2 loaves per day to 100,000 loaves per day and the money supply (fish) has increased from 2 fish per day to 100,000 fish per day!!! Yet here would be ZERO inflation (WHICH IS EXACTLY WHAT I HAVE BEEN SAYING)!!! You CAN INCREASE THE MONEY SUPPLY WITHOUT CAUSING INFLATION.
Quote:
Originally Posted by NoDrama
What makes you think that adding people and at the same time adding money would not create inflation? I Don't understand your logic here, adding more people only creates more demand, which drives up prices when there is no complimentary increase in supply. But that isn't inflation either its just law of supply and demand, inflation is the process by which ALL items increase in price.
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I just outlined it above. If the money supply is increased at the exact same proportion as population growth there is ZERO INFLATION OR DEFLATION. If you do not increase the money supply with the example above you have 2 fish and 2 loaves of bread to divide over 100,000 people!!! The deflation would be so great that you would not have currency SMALL enough to conduct transactional business (which after all is the purpose of money).
Let me use some real numbers so that I can illustrate.
http://www.federalreserve.gov/releas...st/h6hist1.txt
http://en.wikipedia.org/wiki/Demogra..._United_States
In 1960 there was give or take $140,000,000,000 in M1 and a population of 179,323,175 or $780 of M1 for every American. If the money supply were not increased from 1960 there would only be $464 for every American in 2007 and down to $244 in 2100. What do you think will happen to the price of goods and services with a FIXED monetary supply and an EXPONENTIALLY growing population / demand?