Reply To: Inflation and Economic Growth


Dr. Herbener,

I am new to Liberty Classroom, and my understanding is very limited but there are parts of inflation I can’t conceptualize. For instance, years ago my brother asked me how the monetary system knows how much money is in circulation.
My guess at the time was that it is because 95% of US dollars are digital and the currency loses value almost automatically as the supply increases. Now I’m beginning to think it is more of a domino effect from creators to last users. However, it is difficult to imagine an illegal counterfeiter spending fake currency and some form of currency consciousness recognizing quantity changes in a meaningful way.

In response to the above:
If the purchasing power of a given money is the same everywhere it trades how do we differentiate if the cost is an increase in a single product or a loss of currency value?
For instance, I understand the cost of living in Hawaii is quite high and because of shipping costs every commodity is more expensive. Although the dollar has equal value compared to other currencies, it has less value compared to all or most of the products on the market in that region.

Please forgive my lack of economics lingo.