There are lots of reasons we want to save money. We might need it for a rainy day, something expensive, or maybe our children’s future.
But money is only “saved” if it holds its value over time.
Some forms of money decay over time. Flowers die, metal corrodes, and cows get less tasty. But chemistry isn’t the only thing that can make money lose value. Money will lose its value if it becomes less scarce.
A dollar might buy a house if there were only a million dollars in the world. But if we created hundreds of trillions of dollars, a dollar might only buy a stick of gum.
Throughout history, technology has helped people create new money easily.
As I mentioned in an earlier post, wampum beads were money in North America before gold and the dollar. When Dutch colonists recognized wampum’s value, they began mass-producing it in the 19th century using their new industrial technology.
Once the newly made wampum flooded the market, its value diminished. Soon everyone was forced to switch to a form of money that wasn’t easy to create, gold. Today wampum is used for ceremonies and traditional jewelry.
Today’s money faces similar risks. Governments control the supply of money within their borders. Occasionally, a governing body will be short on the money they need. Instead of raising funds through taxation, they issue new currency to meet their needs.
If a government prints too much, hyperinflation begins, and the country’s economy tanks. This has happened dozens of times in just the last 100 years. It’s currently happening in Venezuela, and there isn’t much that the citizens of Venezuela can do to stop it.
A currency that is easy to create can make everyone poor.