After reading the first few chapters of the book titled Broken Money by Lyn Alden, I've come to notice or observe a few things about our economy in a different light.
One of it is this aspect of inflation. Having to pay more money for goods or services that in strick fundamental terms haven't increase in either quantity or quality to warrant their associated price increase.
In more simple terms, the ratio between the goods or services and their monetary value has become quite disproportionate.
The Disparity Between Prices and Value
An example that I would like to mentioned is in the category of essential goods, especially natural items like food.
A bag of rice has sharply increased in price over a decade yet nothing has really changed much about a bag of rice relatively to quantity or quality.
In certain cases, the bag itself has become smaller and the quality of the food has diminished over the years, which kind of seems like we're paying more for less now.
Of course, one could say the means of production has changed, perhaps the method(s) of distribution also, which warrants a change in price value.
But I think the main culprit is in the tool used to purchase these items, which is money.
Money as a tool is multi-purpose. Apart from a medium of exchange, it's also a store of value and a unit of account.
Historically, this tool was often backed by commodities like gold or silver. However, modern money is typically fiat currency, which derives its value from government regulation or law.
According to investopedia, there are generally two types of inflation, demand-pull and cost-push inflation. Demand-pull inflation is when there's more money chasing the same amount of goods, which can happen when governments increase the money supply.
This aligns with my observation in Broken Money that the tool used for purchase itself might be the main contributing factor.
Fiat currency, unlike gold-backed systems, lacks inherent value. If a government "prints too much money", it essentially dilutes its purchasing power.
This translates to the experience mentioned above of paying more for the same bag of rice over time, even though the rice itself hasn't fundamentally changed.
Cost-push inflation occurs due to rising production costs, in this case the price of fertilisers increasing or with transportation expenses, i.e distribution.
Both factors, especially the former can combine to create a situation where the price tag on everyday essentials no longer reflects their intrinsic value, but rather the changing dynamics of the demand and supply of money and by extension, production costs.
The Broken Promise of Savings
Another observation from the book is about savings. There's a quote from it that has stuck with me and increased by perceived value of decentralized networks. It states:
"When savers save money in a unit of account that they expect to be stable, and that unit of account is rapidly printed or redefined to be weaker by a central authority (reduced in terms of purchasing power), then it is basically a breach of contract for savers."
From the chapter birth of banks, section Free Banking Vs central banks.
In the modern world, more people are waking up to this reality of saving money. As the quote highlights, fiat currency's value can be manipulated by governments, which can be particularly disheartening for those who envisioned saving and then retiring comfortably, only to later find their saved sum buys less than they anticipated.
Thank goodness this vision is gradually getting discarded since it isn't in tandem with our current reality.
I think the dream of accumulating wealth and then "saving and chilling" isn't necessarily attainable in a system where the very tool used for saving is susceptible to devaluation.
It is one of the challenges of saving money in a fiat currency environment and having this understanding can push us to explore alternative strategies to preserve wealth, potentially prompting a necessary shift in how we approach saving and investing in a fiat currency system.
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