Reply to thread

Message: <blockquote data-quote="Storminator" data-source="post: 831564" data-attributes="member: 305">This is incorrect. In the old days the currency was fixed by the amount of metal in circulation. Generally, mines are worked (increasing the money supply) and the population grows (increasing the size of the economy). If those growth rates are in balance, prices are stable. If a new supply of coin metal is suddenly discovered, your money supply suddenly increases dramatically, and your economy lags behind. Inflation results. The classic example is the discovery of the New World. The gold and silver supplies increased enormously. One of my favorite quotes of the era is "gold poured off Spain like rain off the rooftops."You can also see inflation if your nation has a large trade surplus. If you keep exporting goods and drawing in coin, eventually you can debase your coins. The Moghul emperors of India actually pulled gold out of circulation to prevent inflation. Lots of Indian gold jewelry of ~1000 AD is due to this fixing of gold to remove it from circulation. But steady, managed inflation as we typically think of it is a modern phenomenon. The ancient world had sudden, sharp bouts of inflation. That's why ancient interest rates were so high. You never knew when one of these shocks would hit your money supply, and ruin the value of the loan.PS</blockquote>