Imagine for a minute that you are a roman emperor, for example Trajan. Imagine furthermore that you conquer a new territory which happens to be riddled with gold veins, for example Dacia.

You’re suddenly flush with gold, a seemingly unending stream of hard currency allows you to double down on your promises of aqueducts and public baths, increase and keep up payments to your legions as well as organise more gladiatorial games and grain handouts.

How come more gold in your hands means that you can do more things?

No other resources are suddenly more plentiful, there aren’t any more building materials, no more things for the soldiers to buy, no more grain, and no more people to use in labor, plays and gladiatorial games. Everything is as before, all of these resources already exist and are currently being utilised in some manner.

Something interesting occurs when you start using your gold. You’re not conjuring new building materials that previously did not exist, no more crops or labourers or actors appear just because you have new gold. All that happens is that you increase your claim on the resources that already exist.

The gold that you use is new to the market, and prices of resources are set based on the gold supply that existed previously to your conquering of Dacia. This means that you have a heavier hand in your claim on the existing resources that those who own “old gold”.
Your spending has a big effect on the economy over time. You still cannot conjure, but you continuously have a bigger say than everybody else in how the existing resources should be utilised. People who previously were sweeping the streets are perhaps now employed in marble quarries. Former actors are now perhaps schooling themselves to become aqueduct builders so as to not miss out on the aqueduct boom.

The resources that you decide to use will increase in price. Every time you use your Dacian gold you are in effect buying at yesterday’s prices. And if you face competition on your purchases, you can overbid. Increased demand and your ability to overbid will cause prices to rise, even for you, but more for everybody else. Tomorrow you will be able to buy marble at today’s prices compared to everybody else.

Over time your new Dacian gold will move around the economy, those who you have traded directly with are second in line to use the same leverage. And they will likely have other priorities than you. A legionnaire will perhaps use his increased allotment of gold to buy better wine. And he will affect the wine market according to the same principle. He cannot conjure up more wine, he only has an increased claim on it compared to his fellow tavern goers. Over time the price of good wine rises, and owners of vineyards will rejoice at this, but will then find that the price of fertilisers continuously rise as well.

Those who get the new gold last, if at all, are the biggest losers. They have not received the new gold early enough to be able to buy at yesterdays prices at all. They have the same amount of gold as before, but prices for all their necessities have increased and they have a smaller claim on the existing resources compared to before you conquered Dacia and its gold.

This is how inflation moves through an economy, not in a uniform and controlled manner. New money will always enter a market in certain market segments, and from there trickle through the economy as a whole, creating winners and losers along the way. The closer to the entrance point of the new money, the bigger the winner, the further from it, the bigger the loser. The economy as a whole is not richer thanks to more gold, all that has happened is that there are new winners and losers in terms of purchase power.

Once the gold mines in Dacia have dried out you have indeed managed to build a truckload of aqueducts and public baths. The already existing resources in the economy have been directed towards purposes that you have favoured. But can you say that you have increased prosperity overall in the empire? No. Those same resources would have been used in some other fashion had you not directed them towards your ends.

It is not in your interest to focus on that though. You will organise a triumph for yourself, and have grand inaugurations of your buildings, people will gawk at your constructions, and allow themselves to be swept away by your stupefying gladiatorial games. Some will thank you, some will offer you disdain. Most will have their own opinion on what you ought to have used your gold for.
Very few will wonder what might have been built instead.

In the mean time prices will have risen on everything, while most people will not have gotten more “monies”. Many will be disappointed in this, perhaps even protest loudly and threaten your autocracy. Even in this you can find salvation in making some groups of people look especially greedy. Perhaps you will say that the grain suppliers are exploiting the poor and impose a price control to the great cheers of the people. Now the grain suppliers go out of business since they cannot maintain a profit. Best you confiscate the fields of the culprits to sure up the grain supply.

The machinations of inflation are the same throughout the ages.

Ask yourself. Where does new money enter the economy today? Who benefits from it? Who has an interest in manipulating inflation statistics so as to make them look as low as possible? Take a sober look at the institutions who fan the flames of inflation today, i.e the Federal reserve and other central banks around the world.

Are they working for you, or against you? Ask yourself if it may be so that the Fed (and its cousins) actually work for the benefit of a few, at the cost of the many.

ps. Trajan did conquer Dacia, and its rich gold mines were instrumental in the expansion of the Roman imperial state, without that gold it is likely that history would have played out differently at least to some degree.