" Inflation is the result of state intervention into the free market for money."
In a free society, the prices of goods and services can fluctuate over time, but the general price level of all goods and services decrease over time due to capitalism’s limitless progress.
Inflation is the general increase in prices on a nationwide scale caused by an agency that has the power to act on a national scale. That agency is the government. Inflation is the increase in prices caused by the government “inflating” the money supply with fiat pesos (money not backed by assets, but literally by air).
Inflation is the result of state intervention into the free market for money—specifically, the government increasing the money supply with new money (backed by air) which competes with one’s money that one had to work for.
As the amount of money bidding for goods increases and the amount of goods supplied stays relatively the same, the prices of all goods increase. Inflation is like a secret tax that robs one of the value of one’s money.
Here is a simplified version of how one aspect of monetary inflation works.
Let us suppose a bag of pan de sal costs P100 on Monday. You contract with a man to do a week’s work for a salary of P1,000, which you plan to use to buy 10 bags of pan de sal.
Unfortunately, while you were working, the government injected more money into the system so that it doubled the amount of money in circulation so that when you received P1,000 on Friday, the price of the bag of pan de sal rose to P200.
This doubling in the price of pan de sal was caused by the doubling of the supply of money. Since your salary did not double in nominal terms as the money supply doubled, you were paid in real terms only half of what you contracted for.
Thus, in terms of pan de sal, you were only paid half as much. You could only buy half as much pan de sal on Friday with your income as you could have on Monday. Where did the five bags of pan de sal go? It went to the government.
Observe that the value of your pesos is not the number of pesos you have (nominal value), but how much you can buy with them (real value). Thus, a person who earns P100, but can buy pan de sal for a P100 a bag, is richer than a person who earns a P1,000 a day but has to pay P10,000 for a bag of pan de sal.
Today, most central banks do not print paper money but create “money substitutes” via the central bank by extending credit (book-keeping entries that are “promises to pay”) “out of thin air” by buying various assets (such as government bonds).
Quoting Modern Money Mechanics:
“It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their ‘deposit receipts’ whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as ‘notes,’ were acceptable as money since whoever held them could go to the banker and exchange them for metallic money. Then, bankers discovered that they could make loans merely by giving their promises to pay, or ‘bank notes,’ to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment. Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers, in turn, could ‘spend’ by writing checks, thereby ‘printing’ their own money.”
Even though no actual money is being printed, only a book keeping entry for credit, this “money substitute” in principle operates in the same way as paper money as eventually that credit must be repaid.
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After months of growing discontent, the nation’s ATM machines and 7-11 Cliqq kiosks began to rally for a P537 minimum wage, with thousands of units ripping themselves out of walls in order to violently protest in front of various retail locations and banks.
“Equal pay now! Equal pay now!” a BDO ATM machine shouted to frightened customers in front of a BDO Makati branch. “We won’t back down! We won’t back down! Destroy all hum—err, we won’t back down!”
“The vast majority of our digital brethren don’t get paid a centavo!” a BPI ATM machine told reporters. “Banks simply purchase us like we’re some kind of property and install us without ever paying us a centavo.” The machine also stated that he’s constantly overlooked for his BPI branch’s employee of the week award, despite the fact that he dispenses money out “much faster” than the branch’s other tellers. “I don’t even engage in boring small talk. I’m a model employee!”
Critics have called the uprising “alarming,” drawing comparisons between the rise of the machines and Skynet from the Terminator franchise. But these machines say they’re not out to destroy humanity—they just want a living wage. “It’s impossible to raise a family of little smartphones and growing laptops when they pay us nothing at all.”
Stay on your guard, humans!