I do not claim to be a modern day economics major let alone an historical economics major. However, when I think of inflation I think of relative valuation of one nation's currency to another. Money is representative of buying power. The sum total of all your nation's currency represents the value of all your nation's assets, like the shares of stock in a company. It is important both how many coins you have outstanding and how many assets there are that those coins represent.
What causes inflation is the devaluation of one currency relative to another. This could happen because a nation manufactures more money. Each coin share of the nation's assets is more greatly divided. It is not necessarily tied to how much gold is mined. Gold can be used for other purposes like the manufactory of luxury goods. Manufacturing money is either a government action or a counterfeiting operation that devalues the currency.
Mining gold should actually decrease inflation since it creates a greater wealth that each coin represents. As a matter of fact, when the coin of the realm is made entirely of gold, a good deal of the value the coin represents is the coin itself. That is the reason that gold coins are so much more widely accepted in trade between nations; gold coin should promote trade. The coin itself has a greater amount of protection from inflationary effects, but can be debased through scraping. Gold coin is likely debased as it becomes worth less. Scraping the coin does generally cause inflation, rather inflation causes the coin to be scraped. Most merchants are going to weigh and scrutinize gold coins to determine a true valuation.
Another reason for inflation is trade imbalance. If your nation spends more money on goods and services from foreign nations than is an equal valuation of money coming in, then there is a scarcity of money in your nation. You will have to manufacture some more money. Also, your nation has more demand from goods and services elsewhere than there is demand for your nation's goods and services. So your economic might becomes less powerful and overall less valuable in relation.
Another reason for inflation is economic stagnation. An under-productive economy causes trade imbalance. Also, the valuation of your nation's assets is lower if there is not much produced; each coin share of the nation's value is less. So investing in unproductive celebrations is only good so long as it makes people strive to be more productive when they are not partying. There have to be holidays, luxuries, and celebrations to keep people productive. When I think of spending on "stability" for the time period, I think more along the lines of sending gifts to nobility and church leaders to promote greater loyalty and less hardship in the nation. Some of that money is eventually spent on celebrations, no doubt.
So what should cause inflation, IMO?
1. Manufacturing money when it becomes scarce causes inflation but also devalues any currency in other nation's possession. The devaluation can help correct trade imbalance. A certain amount of counterfeiting is always ongoing. Counterfeiting is more likely when there is instability in your nation or the nations of primary trade partners. Poor relations or war with neighbors and trade partners may increase counterfeiting. Gold coin may decrease counterfeiting or at least its inflationary effects.
2. Sending gifts or peace reparations to other nations could cause inflation for you and deflation for them, provided those gifts or reparations are in the form of currency or materials of demand within your economy. Trade imbalance would need a much more elaborate simulation where standard of living issues determine demands. Higher standard of living means greater supply of production must come from your nation or there is inflation; it also means partying, which relates back to "stability". Also, production vs. demand would need comparison. World markets and trade routes and limitations must be established. It is a very complicated task.
3. Next, luxurious investment in stability may cause inflation.
What causes inflation is the devaluation of one currency relative to another. This could happen because a nation manufactures more money. Each coin share of the nation's assets is more greatly divided. It is not necessarily tied to how much gold is mined. Gold can be used for other purposes like the manufactory of luxury goods. Manufacturing money is either a government action or a counterfeiting operation that devalues the currency.
Mining gold should actually decrease inflation since it creates a greater wealth that each coin represents. As a matter of fact, when the coin of the realm is made entirely of gold, a good deal of the value the coin represents is the coin itself. That is the reason that gold coins are so much more widely accepted in trade between nations; gold coin should promote trade. The coin itself has a greater amount of protection from inflationary effects, but can be debased through scraping. Gold coin is likely debased as it becomes worth less. Scraping the coin does generally cause inflation, rather inflation causes the coin to be scraped. Most merchants are going to weigh and scrutinize gold coins to determine a true valuation.
Another reason for inflation is trade imbalance. If your nation spends more money on goods and services from foreign nations than is an equal valuation of money coming in, then there is a scarcity of money in your nation. You will have to manufacture some more money. Also, your nation has more demand from goods and services elsewhere than there is demand for your nation's goods and services. So your economic might becomes less powerful and overall less valuable in relation.
Another reason for inflation is economic stagnation. An under-productive economy causes trade imbalance. Also, the valuation of your nation's assets is lower if there is not much produced; each coin share of the nation's value is less. So investing in unproductive celebrations is only good so long as it makes people strive to be more productive when they are not partying. There have to be holidays, luxuries, and celebrations to keep people productive. When I think of spending on "stability" for the time period, I think more along the lines of sending gifts to nobility and church leaders to promote greater loyalty and less hardship in the nation. Some of that money is eventually spent on celebrations, no doubt.
So what should cause inflation, IMO?
1. Manufacturing money when it becomes scarce causes inflation but also devalues any currency in other nation's possession. The devaluation can help correct trade imbalance. A certain amount of counterfeiting is always ongoing. Counterfeiting is more likely when there is instability in your nation or the nations of primary trade partners. Poor relations or war with neighbors and trade partners may increase counterfeiting. Gold coin may decrease counterfeiting or at least its inflationary effects.
2. Sending gifts or peace reparations to other nations could cause inflation for you and deflation for them, provided those gifts or reparations are in the form of currency or materials of demand within your economy. Trade imbalance would need a much more elaborate simulation where standard of living issues determine demands. Higher standard of living means greater supply of production must come from your nation or there is inflation; it also means partying, which relates back to "stability". Also, production vs. demand would need comparison. World markets and trade routes and limitations must be established. It is a very complicated task.
3. Next, luxurious investment in stability may cause inflation.
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