Why the Value of Fiat Currency Shrinks Over Time

My recent articles on Bitcoin facilitated some interesting insights regarding fiat currency. One of the more negative characteristics of fiat money mentioned in The Currency Paradox is its constant dwindling in value as a result of inflation. To illustrate, take a look at this chart regarding the purchasing power of $100 between 1900 and 2010:

Purchasing Power of U.S. Dollar

You may have noticed the increase in purchasing power between 1920 and 1945. I don’t think it is a coincidence that this period correlates to two World Wars costing millions of lives and causing catastrophic damage to much of the world’s critical infrastructure and manufacturing.

Now let’s take a look at this next chart:


If you compare the two charts, they look inversely proportional. This likely isn’t a coincidence.

Now, let’s take a look at two more charts:



Now these:



If you pay attention, you’ll notice a definite similarity between the shapes of the charts. There seems to be a correlation between population growth and economic prosperity. What if all of the economic growth we’ve experienced is simply a matter of more hands doing more things to earn more money to spend?

What originally got me thinking about this was the points I made in my article Bitcoin and Divisibility; one of the things I attempted to illuminate is how an increase in the demand for a fixed currency will lower the amount of currency each person holds. In my example, I used population growth to show how each individual’s portion of a money decreases with a fixed currency.

Much the same thing happens when you consider population growth in relation to the Earth, itself a fixed resource; each person’s share of its resources decreases as the population grows. This idea brought me to a stunning realization … our money is not necessarily becoming less valuable so much as our resources are becoming far more valuable. As our population explodes and we must share more resources, the growth in our overall money supply is reflecting the increase in the demand for those resources, especially as more people become a larger part of the global economy. What used to cost 3 cents may now cost $1, but that is likely because more people want those resources and have “bid up” the price.

More people means less for everyone… that is, unless we are able to utilize technology to improve sustainability. As did Buckminster Fuller, I think that we have reached the point technologically at which all human and animal life can be comfortably sustained. However, I do not think it can be done under the current system of Capitalism. There are many reasons for why I think that is the case but, ultimately, I simply think Capitalism is not efficient enough. Capitalism encourages only using as much human effort as the “bottom line” can sustain. This artificially stunts the massive potential of the population. Poverty has locked in and locked down millions of minds that could be addressing our most pressing needs and millions of hands that could be transforming our world simply because the Capitalist system is set up in such a fashion that it is impractical to compensate these people for their efforts. It’s an incredible waste of labor and talent. We are simply letting these resources whither on the vine because it has been deemed “too expensive” to pluck them.

The challenge that is most necessary to address if we are going to survive as a species in the relative short-term is resource reclamation. Finding ways to reuse and recycle resources that have already been processed in some form as well as utilize our current resource pools, particularly wastes, more efficiently is a challenge that I think Capitalism cannot effectively address. The irony is that most of the technology to efficiently reprocess and recycle resources already exists. However, it is not profitable enough under Capitalism to be done on the scale necessary to create a more sustainable future. Finding a way to decouple labor costs from enterprise and place money creation directly into the hands of everyone has the potential to unlock the mental and physical resources now being poorly allocated under Capitalism. The Currency Paradox is my attempt at a solution.

Does the revelation that the value of money may not be decreasing so much as the value of resources is increasing alter my perspective on what I called “the currency paradox”? Not really. The innovation I introduced in my essay still accomplishes everything I stated; it removes most of the subjectivity and imprecision of Capitalism and replaces it with a system in which demand and supply of money are pretty much always in equilibrium. It creates a system that would allow a level of accuracy in economic understanding that far exceeds what is currently possible. It makes objective, value-for-value exchange not only possible, but practical. The economic innovation introduced in The Currency Paradox, at least theoretically, solves the major contradictions of Capitalism and ends, once and for all, the conflict between Labor and Capital.

Before you think that it is quixotic to challenge Capitalism, please consider the information in this last chart:


This is one of the most devastating effects of Man motivated by Capitalism on our world. We would be quite the cliché if we waited until it was too late to change the system.


2 thoughts on “Why the Value of Fiat Currency Shrinks Over Time

  1. Pingback: The Secret to Sound Money – Rando Calrissian

  2. Pingback: The Golden Moment – Rando Calrissian

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