Perfect. Let’s do village economy, no jargon, no tricks.
The village
There are 100 people in a village.
They need:
• Food 🍞
• Housing 🏠
• Clothes 👕
• Basic services (repairs, care, teaching)
Who produces?
• 40 farmers + builders + makers
• 60 do services, logistics, admin, care
The village can comfortably produce 100 units of stuff per year.
Case 1: Not enough money in the village
Each person gets 1 coin per year → total = 100 coins.
Problem:
• People want to buy food and services
• But they’re afraid to spend (rent, emergencies)
• Some goods don’t sell
• Producers reduce production
👉 Real poverty appears even though the village could produce enough
This is what recessions look like.
Case 2: Give everyone more money (the good case)
Now each person gets 2 coins → 200 coins.
What happens?
• People buy more food, repairs, clothes
• Farmers and builders work more
• Production rises from 100 → 140 units
• Prices rise a little, but not much
Why?
👉 The village had unused capacity (idle workers, land, time)
This is why “giving people money” can work.
Case 3: The inflation trap (your real question)
Now the village is already working flat out:
• Fields fully used
• Builders fully booked
• Everyone working
Still producing 100 units max.
Now the chief gives everyone 3 coins → 300 coins.
What happens?
• People compete for the same bread and houses
• No way to produce more
• Sellers raise prices
• Bread that cost 1 coin now costs 3
👉 Everyone has more money, but nothing is more affordable.
That’s inflation.
Case 4: The housing problem (this is the villain)
Let’s zoom in.
Village can produce:
• 100 food units
• Only 50 houses
You give people more money:
• Food production rises
• House production cannot
Result:
• Food prices stable
• Rent explodes
Sound familiar? Switzerland, cities, everywhere.
Inflation is often sector-specific, not universal.
Case 5: Why Switzerland feels “immune”
Now imagine this village has:
• Very efficient farmers (high productivity)
• Trade with neighbors (imports)
• Strong currency
They can:
• Pay villagers well
• Import extra goods
• Absorb demand without price spikes
Except…
• Land is limited
• Zoning restricts building
So wealth rises, but housing inflates quietly.
That’s Switzerland in a nutshell.
Case 6: The dirty secret — where extra money really goes
Instead of giving coins to villagers, the chief gives 100 coins to landlords.
Landlords don’t produce more houses.
They just:
• Buy land
• Raise rents
• Store coins
Prices rise without any production increase.
This is what asset inflation looks like.
The rule that explains everything
Money is not the problem.
Supply is not the problem.
The mismatch between the two is the problem.
Giving people money works only if:
• There is unused capacity
• Or you expand production where bottlenecks exist
Final village wisdom
If I ran the village, I would:
1. Make sure everyone has enough coins to live
2. Invest heavily in houses and essentials
3. Stop people from hoarding scarce resources
4. Let money grow with production, not faster
If you want, next we can:
• Add banks and debt to the village
• Add trade and imports
• Or explain why modern economies prefer asset inflation over wage inflation
