Want to understand inflation?

It’s actually really simple: If the government prints money faster than the economy is able to produce valuable goods and services, those goods and services become more expensiveIf the government prints less money than the growth in valuable goods and services, prices go down. 

I recommend watching this 13-minute video about inflation and sharing it with people in your life (especially kids and teens).

It’s from Milton Friedman’s Free to Choose videos from the 1980s.  Milton Friedman was a Nobel-prize-winning economist who, among many other notable endeavors, hosted a 10-part series on PBS about basic economics and the free market.

The best part is that Friedman uses simple analogies and examples in this timeless lesson on inflation.  You will see that he references the ghost town of Bodie, California as part of his example.  Bodie was once a thriving gold-mining town established during the California Gold Rush — but as the gold waned, so did the population.  The gold that people had dug up from the ground was again “buried” in the form of gold bars being held in bank vaults.  As Friedman explains, many people ended up where they started: broke and beleaguered.  Ghost towns left over from the Gold Rush are always fascinating places to visit, and it’s a great example of how inflation works and leaves a lasting impact.

My photograph of Bodie, California, taken more than 40 years ago.

Loosely related to this mention of Bodie: when he mentioned it, I thought back to a time that I know most of you will remember (and probably relate to).  When I was around 10 years old, my class took a field trip to Bodie.  I remember it very distinctly because I had a new Kodak camera that allowed me to take a total of 12 pictures of film on a cartridge.  It was painstakingly hard to decide what was special enough to take a picture of and use for one of those 12 pictures.  To this day, I still remember one picture was of a snake.

Of course, today, we no longer have to consider running out of film since we can take virtually unlimited photos with digital cameras and smartphones.  I am glad it’s easier to take more pictures these days, but that specialness of having a scarce resource was a little fun as it made each picture more precious.