Because value itself is arbitrary. It’s not like time or physics. Value is not an inherent property of the universe.
Nothing has constant value
Yea nothing is constant I know. Asking more like why don’t we measure the value of things with someone that holds its value better like gold? It’s physically scarce and cannot be manipulated because it’s verifiable at an atomic level, and will always be in demand.
Everyone used to tie their money to gold. Not anymore.
https://www.npr.org/sections/money/2011/04/27/135604828/why-we-left-the-gold-standard
https://www.stlouisfed.org/open-vault/2017/november/why-us-no-longer-follows-gold-standard
I’m not saying we should have a gold standard again, there were obviously bad downsides. I’m questioning why we measure everything in money which loses its value over time due to inflation. Can’t we measure things in something that has a more stable value while also not having a gold standard?
You’re on to something: the 2% inflation target is just an arbitrary value.
It means your salary is constantly going down for doing the same work - you have to stay on the treadmill just to stay in place.
But if you’re an asset holder then the prices of your holdings appreciate indefinitely, and governments get the power to levy this constant invisible tax on the workers.
Mark Blyth is an expert on the topic: https://youtu.be/GXBSNCysxiA
If money became worth more over time, there’d be an incentive to hoard it, which in turn would make it scarcer in circulation and worth more. Of course it’s more complicated in real life, and the cycle would eventually break, but that’s the gist of why deflation (what that is called) is seen as a bad thing.
Minor inflation is pretty harmless. Exactly 0 change in the value of money might be good too, but it’s right next to deflation. So, the usual target amount is a percent or two of inflation per annum, to be safe. Central banks achieve this primarily by lending money out, at a higher or lower rate of interest as conditions demand.
It does become worth more if you hoard it. They call that interest.
No, you have to lend it to someone else for that, who probably spends it. And it never really matches what it would be doing if invested, and if it’s something like a savings account the interest you earn might even be less than the inflation rate. There’s a whole logic to this.
Collection of interest and profit from investments definitely are included in the reasoning of central banks.
Because things too, on average, lose value over time when materials degrade and better models come out. Inflation saves the trouble of reducing the old price.
I just wish the new models were better than the old ones.
banana for scale
It feels like your asking what value is. Value is a sentiment that depends on many factors but it eventually decomposes to some utility factor. You could argue that water is not valuable because it is abundant but that depends on context. In the desert it becomes extremely valuable for people to live. It’s difficult to make a numerical assessment of value and measurement implies a level of precision and universality that is inappropriate. We estimate value based on contextual factors such as supply and demand. It’s not a great way to assess it but better than nothing.
I’m always pleased when I buy stone construction materials because they deliver 1000kg of material and it only costs £20. I don’t know of any other material that is seemingly so abundant, inexpensive and useful. I’m not convinced I would feel the same way about a tonne of gold, aside from the scarcity. Maybe I would make a gold toilet and get x amount of fame on social media, that’s apparently extremely valuable.
Because this way you’ll never know if it’s just inflation or an ever growing markup.
Cause it allows you to have a Ponzi scheme in which you always assume the future will be more prosperous.
If money loses its value, that puts pressure on people with money to use it and try to turn it into more.
So unless your willing to lose money due to inflation, you HAVE TO get a return on your investment, thereby ensuring perpetual growth.
It works well when there is tons of room to grow, but then it all falls apart when you run out of that.
Once that happens, you just keep increasing the money supply, allowing capital holders to increase at a faster rate than workers. Even though workers “make more”, they have a smaller share of the pie.
There’s no such thing as an objective measurement.
Every single measurement we have is relative to something else.
Also having a measurement to something we use every day is a good thing. Like that’s the price of the object. You can look at the price of the things 50 years ago. People aren’t writing down random calculations to measurements in different arbitrary units just to record that pointless data point for someone in the future to use.
