Understanding Inflation

Understanding Inflation

May 15, 2025

Phineas walked into the local mercantile wanting to purchase a dozen eggs. The proprietor informed Phineas he wanted 1 gram of gold in exchange. Phineas informed the proprietor that he did not, currently, have any gold on his person for the exchange.

“Well, what do you have?”

With that, Phineas took out an average sized glass vial containing nearly 12 grams of what he referred to as “sand”. Intrigued, the proprietor examined the vial carefully, asking to open it, so as to weigh the contents. Phineas agreed to his terms.

“Where did you get this “sand”?

“I acquired a small lot during my navy days in India.”

“India you say? Is it worth anything?”

“It was my pay. One vial for one week at sea. It had better be worth something.”

Upon hearing this, the mercantile owner made the exchange and began coveting his rare treasure.

The next week, Phineas returned to purchase another dozen eggs. He chose carefully and took the carton to the counter to pay. However, the proprietor told him that he encountered another former navy man with a similar vial of “sand”. Thus, “sand” is not as valuable as you say. Thus the price of the eggs is now two vials of “sand” per dozen. Dejected and somewhat hungry, Phineas gave him two vials of “sand” and departed.

In four days, camped ten miles outside of the town, Phineas and his vial seller met on a river bend. They both exchanged stories about their purchases and the proprietor’s reaction to the increased supply of “sand”. Phineas asked his vial seller to travel to another town to conduct business. The vial seller just kept digging and drying “sand”. He was going back to town to purchase everything he could. In response, Phineas dug even harder, acquiring even more “sand” than his (now) competitor. Both opted to forgo vials, instead using bags and sacks to carry their bounty. When full, both the vial seller and Phineas took their huge amounts of “sand” to town.

At the mercantile, they noticed the proprietor continually raising his prices in response to Phineas and the vial seller continually increasing their mass of “sand” they were willing to forgo for payment.

By sundown, that last dozen eggs cost Phineas nearly three tons of “sand”; a far cry from what he spent on his first dozen eggs.

The vial seller decided to locate another river bend where he could collect the five tons of “sand” he would need to pay for a loaf of bread in the morning. Phineas decided he would look for one gram of that “gold” the proprietor wanted in the first place.