Does Inflation Happen in Hell?

This post was originally published on 11th April 2007. Images have been lost to the mists of time, and have been replaced with placeholders. Links that are still active have been restored.

This post is to humor Shyuing, who’s been going through hell (I assume) studying for her Macroeconomics.

We Chinese have a custom called Qing Ming (清明). It is akin to All Souls’ Day in the west. Qing Ming is a time for us Chinese to honor our dead ancestors, tend to the graves of the departed and so on and so forth. That is of course, assuming that the dead ancestors are buried, and not cremated or something else. Anyways, Qing Ming is primarily a day to remember the dead, for us Chinese who value our customs (but that’s totally another issue). Qing Ming was last week.

[IMAGE: H$1000000] Hell NoteAnyways, during Qing Ming, those who stick to old Chinese customs will tend to burn money for the dead, for their continued usage in the afterlife, a.k.a Hell. These money of course, are not real money. These money are known as Hell notes, or Hell Money (Which by the way, caused the Chinese to start using paper money in ancient times). For more information on hell notes, Wikipedia has an article on it, while Randall J. van der Woning has a very well-written article on hell notes. (It’s odd when a Caucasian writes a good article on Chinese customs, where as Chinese sources are severely lacking)

Accordingly, the denominations vary from H$10 (H$ = Hell Dollars) to H$8 billion, per note. Now, let’s find out if inflation happens in hell.

First, some assumptions:

  • There is no Federal Reserve in Hell (though some notes may indicate so) to control money supply.
  • The surface worlders (that’s people who’re living, like you and maybe me) control money supply every year, by us determining how much Hell notes are burnt.
  • In accordance to the Laws of Thermodynamics of Hell, everyone eventually goes to hell.
  • With a world death rate of 8.67 deaths/1000 people, and a world population increasing, there logically should be more people dying.
  • Hence, the population in hell also increases exponentially (in accordance to the Laws of Thermodynamics of Hell) over time.
  • However, it must be noted that the death rate is dropping yearly in the past century.
  • The rules of normal economics apply in hell (i.e when there is an increase in money supply, the price level drops)
  • Classical dichotomy cannot apply – simply because there isn’t any physical units for measurement of real value.
  • Classical dichotomy applies – new fangled technology has allowed the souls in Hell to own cars, and physical items.
  • There is production in Hell. This comes from the Chinese proverb “有钱能使鬼推磨” (translation: When you have money, even the devil will do the work for you), proving that there is production in Hell.
  • Production increases linearly with time, due to improved capitals available in Hell.
  • Velocity of money is constant over the last 10000 years
  • Hell has a dead economy (i.e it’s closed – no trades with Heaven or other realms)
  • Hell doesn’t have M2, it only has M1 – i.e currencies, cheques and credit cards.
  • No such things as Interest Rates (There is no central bank)
  • No such things as wages (souls in Hell are condemned to work for free forever)
  • The only source of money is from the surface worlders.

OKay then. Let’s get to work.

Basic Monetary Concepts

First off – price level is affected by the supply of money. The larger the supply of money, the higher the price level (hence lower value, 1/P)

[IMAGE Money Supply and Demand]

Now, logically speaking, if the number of souls keep increasing, the demand for money will shift to the right as well. And over time, the demand will shift to the right exponentially (i.e bigger gaps each time)

But consider these facts:

  • Humans are burning more money – money supply increases exponentially with time
  • Demand increases linearly together with production, like all modern societies

Wait… there seems to be some contradiction here, no? Here they are:

  1. With the exponential increase in souls in Hell, the demand should increase exponentially as well
  2. But demand increases linearly together with production in a traditional sense.

Oh okay… to make things simple, let’s assume that the total demand is linearly increasing, due to the fact that people are not dying (and hence entering Hell) fast enough to warrant a very huge exponential increase in demand.

So, we’re back to these two premises:

  • Humans are burning more money yearly – money supply increases exponentially with time
  • Demand however, increases only linearly with time.

This would mean, the supply of Hell Notes would outstrip the demand in time. If we soully solely use the Quantity Theory of Money, that would mean the value of the Hell Notes would drop over time.

Mathematically:

MV = PY,
where M = Quantity of Money, V = Velocity of Money, P = Price Level of the Money, Y = Output of Production
When M increases, P increases. When P increases, the Value, 1/P, drops.

So What?

This means inflation is happening in Hell. In fact, a hyper-inflation is happening over there. There is even evidence!

Many years ago, I don’t remember seeing anything as large as a H$ 8 billion note. The largest I ever saw about 10 years back (that was about the last time I saw Hell Notes) was about H$1000. And now, there is a H$ 8 billion note. Talk about inflation!

Heck, during the time of the Ancient Greeks, the value of money is even larger – All they ever did was to burn 2 silver coins (placed on the eyes of the dead) and that’s all. Hmm.. maybe the super extravagant Egyptian Pharaohs and the Chinese Emperors initiated the inflation by bringing along with them so much money.

I guess, with so much hyper-inflation going on, it must really be hell to live in Hell.

Unanswered Questions

There are many unanswered questions – such as: how did the hyperinflation happen. Then there are serious economic questions regarding real output (what the heck?), interest rates (no Federal Reserve there), aggregate demands of the souls in Hell, unemployment and etc; how did inflation in Hell begin?; is there even trade of goods happening in Hell in the first place?… and so much more. Afterall, this is a very very simplified model of reality (heck, I only used the quantity theory of money, when there are so many more theories to inflation)

If you can answer this, you’re either someone very spiritual (like God), or you are the next John Maynard Keynes. Hmm.. come to think of it, if the theory of the Thermodynamics of Hell is correct, and everyone goes to Hell, he probably is there trying to inform the Authorities that more control need to be exerted in money circulation.

So, what do you think of inflation in Hell? Insert your comment below, and let us all have a jolly discussion.