What is inflation?

HINT: It happens when the Feds dip into YOUR savings. Every single day.

Suppose you order a pizza for you and a couple friends. Let’s say the pizza cost an even $10. (Pretend it’s the 70s.) Let us further stipulate that the pizza is evenly sliced into ten perfectly fungible pieces that are indistinguishable from one another. In this story, let’s say you’re a starving college student, and you’re trying to recoup your costs by charging your friends by the slice.

How much would you expect each slice of pizza to cost? If you said $1 per slice, then I agree with you!

In this metaphor, the “pizza” represents the entirety of the real goods and services in the economy. The $10 represent the entire money supply.

Now, let’s make it a bit more interesting. Let’s say that you also have a money-printer hooked up at home that can print money whenever you need it. Your friends have to do work—that is to say, earn—their money. But you—and you alone!—can print as many Pizza Bucks as you need.

What could you do with that kind of power? Think about it.

Now let’s go back to the $10 pizza economy. It’s just you and your two best friends, and you have all worked up a huge appetite after helping them move all day. You are all positively ravenous! Each of you devours the amount you can each afford—three slices for a dollar apiece.

But now, unlike your other pizza parties, you are ALL desperate for the last slice of pizza. Normally everybody is full, and saves that last slice of pizza, but not today! A bidding war erupts for the final slice.

No worries, you always knew it would come to this. You bust out your money-printer, and print yourself a new Pizza Buck, bringing your net worth up to $2. Each of your friends bids their last $1. Armed with $2 Pizza Bucks to their $1, you outbid them easily.

The pizza is hot; the cheese perfectly melted. The toppings are evenly distributed within a tapestry of taste! It is everything you’ve ever dreamed of in a pizza… and thanks to your trusty money-printer, it’s all yours, baby!

For dessert, nothing compares to the sweet taste of victory.

You devour the last slice of pizza, and count up all the Pizza Bucks in circulation. There are now $11 Pizza Bucks in the entire economy— $1 more than the previous $10 total.

How much would you expect each slice of pizza to cost, now? If you said, $1.10, I agree with you! It looks like the price of pizza just shot up 10%.

But that doesn’t matter to you. Why? Because you are the proud owner of a money-printer. You were able to eat an extra slice of pizza, and your “friends” didn’t even notice when you used it! It’s beginning to look a lot like Christmas…

EPILOGUE: You continue to abuse your “friends” for the next 50-70 years, printing counterfeit Pizza Bucks at every available opportunity. You get fat while your friends subjects get thin. They can afford less and less over time, while you can afford more and more. They don’t know how it is your fault… but they know.

Here’s Milton Friedman to back me up: