Dear Mr. Berko: I’m taking an economics course in college. We’re learning about inflation, and the professor wants each of us to write a paper on this subject. How do you explain inflation? I know that inflation means rising prices, but I can’t understand the idea of how the U.S. dollar can fall in value. The dollar is always worth four quarters or 20 nickels, so how can it become worthless or worth less? I’m writing this letter for myself and the rest of the people in my six-person study group, who are just as confused as I am. We understand that prices for finished products have to go up when companies have to pay their help more and also when raw material costs increase. But we hope you can explain to us, in simple-to-understand words, how a dollar can fall in value. — GR & Study Group, Durham, N.C.
Dear GR: If you’re willing to wade through the following unorthodox explanation, I think I can help you guys.
Inflation concerns the sustained increase in the general level of prices for goods and services and is measured as an annual percentage increase. The value of a dollar is defined in terms of the purchasing power it has with respect to a predetermined basket of tangible goods and services. As inflation rises, the dollars you own purchase a smaller percentage of those goods and services. If that basket of goods costs $100 this year and if the inflation rate is 3 percent for the next year, then that basket of stuff will cost you $103 next year. So because of inflation, next year your dollar won’t be able to purchase the same amount of goods and services this year. This is how a currency is “debased” and becomes worth less.
Inflation became a prime concern for Romans 2,034 years ago. In 17 B.C., Reducius Shavius of Florentia was the first pre-Christian to be executed for aiding and abetting inflation in the Roman Empire. Not even his well-known criminal attorney, Tyrannius Rexus, could save him. Back in the old days, before wrinkle-free togas, Reducius Shavius figured out a scheme to make 5 percent every day from every gold and silver coin he could get his hands on. Back in those days, gold and silver coins (the aureus and the denarius) were used in most official transactions because paper currency hadn’t been invented yet. Reducius realized that he could use a sharp knife to shave the edges of coins, reducing the size by 5 percent, and no one noticed. For every 100 aurei he reduced in size, he would make five new coins from the shavings. So each remaining aureus would have 95 percent of the gold content of a newly minted aureus. This is called debasing the currency because each shaving reduced the gold content of the coin, causing each coin to be worth less. (This is reason that the U.S. Treasury gave pre-1964 dimes, quarters and half dollars, which were 90 percent silver, crenulate edges.)
In 8 B.C., Reducius Shavius was convicted of debasing the currency and charged with grand theft mortem — not petit theft vitae, a less serious offense proposed by Tyrannius Rexus. Resultantly, Reducius was ceremoniously fed to the lions; they didn’t have the electric chair in those days, and it was more fun to watch than a hanging.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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