Why is inflation necessary? Is it possible to have an economy without inflation?

Answer 1

That's quite the loaded set of questions. First up, you need to understand what inflation is and how it happens, and most people don't understand either. Inflation of a given currency is the devaluation of that currency, i.e. it takes more of the currency to purchase an item than it did before. For example, if gold costs 400 dollars an ounce today and 450 dollars an ounce tomorrow, then tomorrow, inflation will have occurred at the rate of 12.5 percent (400 divided by 50) for the day. That's quite a bargain if you're a gold investor and you had already bought gold, but it pretty well blows for just about everyone else. But the really screwed up part of all this is not how it happens, but why. Why this occurs has to do with the currency itself. Let's take the American dollar as an example.
In America, prior to about 1913, all citizens were allowed to own gold in all its many forms. The reason why was because gold backed our currency, and you could take dollar bills to a bank and exchange them for gold. At that time, gold cost about 30 dollars an ounce (troy scale). Later, as America outlawed gold ownership and the citizens slowly exchanged their old currency for a new set of bills that they could not exchange for gold, the price of gold began to rise. This is because more bills were being issued than before, and so the same amount of gold, now all in the federal depositories, was backing more bills. Over the years, the amount of actual dollar bills in circulation kept increasing, while at the same time, America was shipping gold to foreign countries to both buy back some of our currency that they were holding, and to buy some of theirs, as well. The result was that less and less gold was backing more and more dollars, so each individual dollar was able to buy less gold. This also meant the dollar became worth less and less, so the same dollar that used to buy 10 loaves of bread can today only buy one really small loaf. In the 1980's, under the Reagan administration, it became legal to own gold in various forms once again, but now our currency is backed by apparently nothing.
So the real culprit here is the issuance of currency. When more currency is released, it is *all* worth less, and when less currency is released, it is all worth more.
Where many people get confused is the myth that higher wages and prices cause inflation. The reality is that higher wages and prices are the *result* of inflation, because the currency for those wages and prices is worth less; the cause is the overissuance of currency.
So why is it necessary? By increasing the amount of currency in circulation, more money is available at the banks to lend to people to build homes and make their businesses faster, more technologically advanced, and generally more competitive. A long time ago, it was possible to have a currency without inflation, by simply having it backed by something concrete like gold that all nations respected. But in today's world of increasing populations and businesses increasing their markets outside the countries they start in, it is unrealistic to have a currency that is so bound. Inflation is occaisionally necessary to jump-start an economy that is floundering. For example, when the problems of corporate fraud on massive scales in many large businesses and the 9/11 attacks causing America's Wall St world of finance to go to hell combined to really set our country in an economic tailspin, more currency was issued, and we rebounded back quite nicely.
As to your second question, I think I've already answered that as well, but let me state it plainly: no. If you want to have an economy that can be responsive to regional situations like Hurricane Katrina, national problems like the War on Terror, and global emergencies like the tidal wave in India, you must have a currency that you can adjust by issuing more (or less) of it.

Answer 2

The success of the Capitalist model depends on growth. With that comes inevitable inflation.

Answer 3

inflation is caused by the decreased value of something, which is caused by having excess amounts of it... only in a synthetic world would it be possible to stop inflation

Answer 4

1) Inflation is not necesary.
2) Yes. (You need to pay your 8 Trillion Debt first, obviously)

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Answer 5

yes. but you need to have a world where money does not exist .
best option is barter system .
no it wont work uncle sam wont agree.
anyway smart question.
thanks