Why Does Inflation Exist?

All the factors mentioned in the above video are of course the preliminaries. What we want to understand, is if all these factors were removed, and the economy was allowed a free flow, will there still be inflation? Answer: Yes.

Being better off

As people start working, they expect a rise in their income. This is not a new thing. Everyone who starts a new job will want more money the next year, simply because of all the efforts he put in this year. While the over all employment ratio and the number of people demanding a wage rise can be argued, we can all agree that most people work more to earn more. Our efforts are aimed towards being better off, towards being able to afford everything we’ve always wanted to. Our higher salaries make our employers raise prices of the products and services we create, and cause inflation.

In a communist society, the ideology is actually opposite. Since most people aim at nothing but the minimal lifestyle and community benefit, they end up with no inflation, or even deflation.

While deflation might seem like a bright idea, it most certainly is not in the long run. Deflation in the short run could mean that the costs went down a lot, or maybe their was a huge monetary contraction policy, but in the long run it would mean that people’s income is decreasing.

Why can’t everyone have a constant income?

Our desire for more money might seem bad, but it is what drives us to innovate. People work long hours, research, and create new stuff only because they’ll be paid well for it. This is the reason that the future will always see people better off. As people earn more, and they innovate more, our money can buy better and better products and services every next day. If asked to choose between a car that came 10 years ago, and a car that came yesterday, if they’re both affordable to you, you will buy the car that came yesterday, simply because it is better. This is what inflation does, it produces innovation, and our money ends up being able to afford better and better stuff.

So is inflation just an illusion?

No. There are people who get raises, and people who don’t. There are business that succeed, and business that don’t. The whole economy won’t get a raise next year, which is why people will always oppose rising prices. Poverty opposes inflation, but it doesn’t exist because of inflation. Inflation is like the sound that a cycle produces while moving, it just tells you that the cycle is in fact moving. That people are better off than they were. It is the government’s responsibility to manage inflation on those who can’t bear it, through policies. It is also the government’s responsibility to keep a check that inflation isn’t too high or too low.


Inflation is a property of prosperity, if it is stemmed by people being better off than they were. It originates from people earning more, and results in everyone being better off than they were before.

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