If, in a town, there are five dollars and three sticks of gum, the gum owners might place the price at one dollar. However, if the local market is suddenly flooded by five hundred new dollars, the price of the gum will most likely go up, possibly to one hundred dollars. That is why you cannot get a meal in a restaurant any more for fifty cents.
As long as all the paper had to be backed by gold, there was limit to how much could be printed, because there was limit to how much gold there was. However, as we moved away from the gold standard, more money could be printed, thus prices had to rise. It was monetary inflation, and it is still going on.
In the country of Germany, after World War I, because of the amount of war debt and post war debt Germany had incurred, the government had to print millions upon millions of new marks, (the German money unit) just to pay the debts. Thus the mark became so devalued that it was worth more as fire starter than to buy fire wood.
The German hyperinflation got so bad, that they began printing one hundred trillion mark notes.
|Children making blocks out of stacks of marks.|
Through His Strength We Will Conquer,
Andrew C. Abbott