Inflation is the fractional-reserve banking driven increase in the supply of money over time, which often results in a general price rise. It is widely regarded as both good (by speculators) and evil (by Phil Spector). The rate of inflation from region to region varies depending on the level of government mismanagement of the economy. For example in the United Kingdom, a highly regulated economy, a croissant has cost a half-groat for over 600 years. On the other hand, in Zimbabwe (a slightly troubled country), the price of a quart of dirt has risen 231,000,000% since you began reading this sentence.
Measurement of inflation
Inflation is most often expressed as a percentage of change in consumer prices since the last time someone looked at the graphs. This period commonly corresponds to one of your "Earth" years, which has leant credence to the popular theory that inflation is actually measured by magnified sunlight burning holes in tanned parchment at Stonehenge on the winter equinox. Concerned that inflation was being increasingly manipulated by druids, the United Nations in 2004 banned the use of ancient ruins for economic speculation.
Inflation often rises during times of war. This is an effect of rationing, a system for distribution of goods by which the community has less of everything than they did before. Government price-fixing can help counteract this inflation, but can also lead to the maintenance of conflicts. The most famous example of this was the press conference following the royal decree of Richard II fixing the price of wagon wheels during the Hundred Years War. In response to an intrepid reporter asking how long the prices would remain fixed, Richard said "Let's see... a hundred years. Why not?" This was said by historians to strengthen the French resolve (for once).
Theories of inflation
A number of competing theories exist for why inflation occurs. Inflation can be observed in feudal China in the ancient proverb, "A goat is a goat, but will still look rationally into the future when trying to maximize its well-being." John Maynard Keynes was famous for advocating limited government intervention in order to stimulate economic growth, called the "Keynesian" or "It Wasn't Me" Theory. He derived this theory by observing overfeeding of his cocker spaniel Charlie with chicken wire and old boots (or "interest rates"), to encourage exceptional bloating (or "farts").
- The Bank
- Deflation - happens only when government manages the economy excellent
- Hyperinflation - an extremely high inflation by government mismanagement and/or over-investment