Your Humble Blogger has been intending, since the interesting chat that my mention of inflation the other day went all happy, to write more generally about money and inflation. Money, as I’ve mentioned before, is a kind of mass hallucination. A wonderful one; our civilization depends on our ability to all pretend to believe that money exists and is valuable. Not just the little pieces of paper that, as Douglas Adams pointed out, aren’t generally the ones who are unhappy, but the whole deal. When my employer directly deposits my pay into my bank account, nothing at all moves or changes hands; there is a tally that changes at my employer’s bank, and a tally that changes at my bank. But that’s enough, because everybody thinks<\/i> that it’s enough. Aren’t humans amazing?
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Anyway, because money does not, in any significant sense, exist, and its value is a mass hallucination, the concepts of inflation and deflation and so on are essentially psychological ones. Which is fine, and in fact a good thing. You see, the easiest way to pretend to believe that money exists and has value is to actually believe that money exists and has value, and as everybody else is also<\/i> acting as if money exists and has value, that’s fairly easy to do. And if everybody acts as if money has more or less the same<\/i> value, it’s even easier. But they don’t, not quite, or not really. If you’ve ever been in a poker game with six people with completely different affluence levels, you have experienced something like this. A ten-dollar buy-in for a graduate student is the whole discretionary income for the week; a ten-dollar buy-in for an insurance broker is a tip. The game doesn’t work, until and unless everybody starts treating the chips as having the same value, the mental switch flips and then little plastic discs are<\/i> valuable, because we treat them as valuable.
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