The Story of Inflation!!

What to be rich and have alot of money?! Don't print alot of money!! Allow me to explain

After the middle ages, the world was a big pie in the hand of the European countries. Each country cuts a slice. Some took over parts of Africa. Others choose North America and Asia. You can say that despite the infighting between European countries, they choose to change the way they fight each other. Countries began fighting over other control of other countries. There was a feeling that in order to be a great nation you had to have alot of control over the world. From here the idea of imperialism started to spread rapidly. Each country would go and take over small colonies even if they didn't bring any benefit to the country. At least it would bring slaves and from what I know at the time slave trade was very profitable.

British Empire

This brings us to Spain and nobody can argue that Spain didn't play its cards wisely when it took over South America especially the countries at the top of the continent as myths often depicted that those areas contained vast amounts of gold and other valuable resources. And allow me to tell you that myths were a big deal after the middle ages. One of those myths is "EL-DERADO" which talked about a king being covered in Gold. He wakes up and puts himself in water in order to remove the gold off of him. Where is EL-DERADO?! The myth says in South America.

So in 1526, Francisco Pizarro,leader of the Spanish conquistadors went to king Charles V asking for an army to fight back the Incas in South America. The king agreed and 3 ships carrying 181 men and 27 horses in the span of 2 years took control of Panama. Did they find Gold?! No but the conquistadors were obsessed with the myth and continued taking over countries until they reached Cerro Rico, a mountain with the height of 5 kilometers filled with silver. The fascinating thing is that this mountain changed the economics of the world. Despite not finding gold, the mountain's silver was enough. Enough to cover one fifth of Spain's economy. That's right One Fifth. The mountain was so valuable that many sacrifices were made. Thousands of Indians died in the process of extraction and if that wasn't the pollution was so rampant that enough one in every eight people who entered the mountain died. Also don't forget that those Indians weren't paid. Indians were dying so quickly in fact that Spain considered getting slaves from Africa.

After all was said and done, Spain was able to extract more than 45000 tons of pure silver. You would think that this made Spain so rich but no the toughest economic problem hit not only Spain but the whole of Europe. People couldn't afford food. The rise in prices was HUGE. Food prices which were relatively stable for the past 300 years were suddenly rising. It didn't only affect food but the whole price of items. But Why?! Spain had just uncovered more than 170 tons of silver. Spain was the root of the problem. What happened here is called "INFLATION."

I think we can all agree that money has no value unless someone else is willing to give you something in return. So when the person in front of you doesn't approve of your money, those with and without money become equal. The conquistadors didn't understand that the value assigned to money silver or even gold is dependent on us,Humans. We are the ones who assign value to objects. When an item becomes so abundant, its value drops and this is very understandable. When 170 tons of silver enter a country, everyone from rich to poor were able to get their hands on silver which prompted merchants to increase the prices. Despite the harsh economic climate, the rising inflation was only at 7% while in modern times countries like china have a 10% inflation and no one is having a problem.

World War 1 Newspaper

This is nothing ,however, compared to what Germany had to go through after the first world war. In the first world war, Germany lost pretty badly and in wars the loser always pays the heavy fines. In Treaty of Versailles, Germany had to agree to paying 400 Billion immediately and that hefty fine wasn't being paid to cover debts or for Germany's citizens but for others that it harmed during the war. The fine was so big that John Keynes,a leading economist at the time, stated that it was one of the most violent acts of peace. This caused the national bank to go on a printing spree. To put it into perspective, before the war one us dollar equaled 4 Mark. During the war, one us dollar equals 8 Marks. At the start of 1921, one dollar equals 60 Marks. June 1921, one dollar equals 330 Marks. December 1922, one dollar equals 800 Marks. November 1923 one dollar equals 4,215,500,000,000 Marks. That's 4 Trillion. The rise was so fast that The Economist Magazine wrote that restaurants would change their prices every 30 minutes.

Both the Spanish conquistadors and the German didn't understand that anything from money to silver has to have a sense of belief for it to be of any value. If gold is abundant, it wouldn't be expensive and if you think that these are anomalies then you haven't looked at countries like Zimbabwe and Venezuela. In Zimbabwe for example, the inflation reached 66000% in 2007. June 2008, inflation is at 214Million% and by august of the same year inflation rate reached 14Billion%. In 2009, the government canceled the currency entirely. There is a saying that because of how worthless the currency has become a person walking in the street would stumble across 100 thousand Zimbabwean dollars and not pick them up.

That was it. Hope you liked this article don't forget to upvote this post and follow me for me. You check the sources down below
Sources:
https://www.nationalgeographic.com/archaeology-and-history/archaeology/el-dorado/
http://news.bbc.co.uk/2/hi/7859033.stm
http://www.economist.com/node/11751346?story_id=E1_TTSVTPQG
http://content.time.com/time/magazine/article/0,9171,717208,00.html
https://en.wikipedia.org/wiki/Cerro_Rico
https://www.biography.com/people/francisco-pizarro-9442295
https://www.economist.com/news/finance-and-economics/21576665-grubby-greenbacks-dear-credit-full-shops-and-empty-factories-dollars-they
https://www.amazon.com/The-Ascent-Money-Financial-History/dp/0143116177