Well the answer is quite simple it’s printing of money which drives the Inflation, many already know this, but let’s illustrate
Suppose there are four People A, B, C, D in a very small town. There are four types of skilled workers in the Economy, suppose A is a Farmer in the Economy who produces agricultural products like Wheat, Rice, fruits etc. B in our hypothetical example is an Transporter who transports goods. C is an Artist who entertains people by enacting small stories, scripts, etc. D is a Mechanic who repairs vehicles, machines etc. Now suppose there is a Government in place which has issued Currencies which the people have to use while buying or selling goods, they cant reject the Government Notes, now suppose that D has found a machine which can print notes, now he becomes lazy and stops working as the printing machine suffices all his needs, he starts buying food from the farmer and pays him though the notes he has printed, when he needs entertainment he gets it from the artist and pays through the printed notes, but whenever the Transporter needs to repair his vehicles ‘D’ does not oblige and refuses to work, now lets see how the situation turns out, Farmer has a limit of producing agricultural goods, and also whenever any machines at his workplace stop functioning there is nobody round to repair them as the Mechanic refuses to work and repair the machines, so whenever any problem arises he has to use the services of Transporter to carry the machines to city for repairing, If he needs to entertain himself, needs relief from stress after rigorous work in the weekdays, he cant get it has the Mechanic with all of the printed cash he has already booked the artist for his service, Also since the Transporter cant get his vehicles repaired from the Mechanic he has to use the services of the Mechanics from the city and render them extra money as travelling allowances, to get all his vehicles repaired, increasing his cost which he passes on to the farmer whenever he needs to transport machines, All this leads to the farmer in believing that the current prevailing prices for his goods are not sufficient for him, as he has to render more money to the transporter, also he is not able to get refreshment after the rigorous work of the week, he hikes the prices of his goods, but to no avail as this is not sufficient due to the printing press of the Mechanic which renders money as and when required to get the services of his choice, but there is saying you cant fool all the people for all the time, slowly and steadily people start sensing something fishy is happening, after coming to know about the printing press they start pricing in such a manner that they might be able to beat the printing machine and all this leads to hyperinflation.
Well I have used a small example of a small town with just four Individuals, but this is what might happen when more people are involved but the price discovery would be albeit at a smaller pace. Printing Money not supported with sufficient goods money can buy lead to Inflation. User comments welcome.
