I don’t understand this, but let me see if i can talk my way through it.

First there was money, mostly silver but sometimes gold, shells, tobacco, camels, humans, and eventually coins and paper. A widely accepted medium of exchange was really useful, more useful than any tool. It was wealth not only because of its usefulness for trading but also because it had utility in and of itself. So this meant that a government’s ability to spend was dependent on its wealth and all the derivative aspects of wealth like the ability to borrow against it or create more of it. A wealthier government had more silver and gold.

Then fiat currencies which are great for trading, as long as they are broadly accepted, and are much easier to manage, at least logistically, than something material like silver, or even worse, camels. But fiat currencies have obvious problems. First, who wants to accept the worthless paper from some foreign government. Second, governments are irresponsible or incompetent at managing the currency.

But now here we are. The US dollar is universally accepted around the world. It’s like silver or gold except that it is much easier to transport and harder to dilute. So the dollar has finally achieved a sort of pure state of money. It is a universal medium of exchange, with no intrinsic value except for the fact that it is a universal medium of exchange which makes it as valuable as gold, or more. It is a piece of paper or just a representation in a computer.

And this is sort of a new thing in the world, not the fiat currency part, but the universally accepted fiat currency backed by nothing other than its universal utility as a medium of exchange. And this fundamentally changes a government’s ability to spend, or at least this government’s ability to spend. And frankly it has been this way, more or less, since World War Two and Bretton Woods and leaving the gold standard and now virtual dollars created by computers have just pushed this reality to the point at which it is harder and harder to ignore until now, with rank stimulus checks raining down on individuals the same way the government formerly rained bonds to finance WW2 or bailouts to rescue banks and car companies, we’re all coming to understand that the government’s ability to spend is not limited by the amount of silver but simply by the utility and universality of its currency, which in the case of the dollar is almost total.

A government used to manage its wealth. Now, this government at least, just has to manage its money.

I don’t understand where inflation fits into this picture. It seems almost a theological question. The terms of the discussion have all changed and some priests are clinging to the old beliefs while others are trying to understand the new system. The role and causes of inflation are different in this new world.