(This article is now unlisted. It’s in the process of being re-written.)

Measuring the value of a unit of money is difficult because we can’t use money as our measuring stick. We have to use the price of a [subjectively chosen] basket of goods and services. Leaving aside that mess, what causes a unit of money to change in value? I believe there are two main forces:

1. Money Supply

If the supply of money increases, then each unit loses value because it is less precious. This is a widespread and persistent force on the value of units of money. The huge increase in american dollars since the 1970's is the reason why today’s dollar buys less than a dollar in the 1970's.

2. Technological Progress

Consider two extremes: If absolutely nothing was for sale, then a great sum of money would be worthless. (Of course, if money was worthless it would not exist at all.) On the other hand, if anything and everything was for sale, then even a small amount of money would get you a piece. A piece of infinity is quite large! The ongoing march of technological progress is making and delivering more and better things faster. We are moving from an extreme when there was no money to when even the poorest among us is very rich.

The value of a unit of money when buying goods and services from a technologically-progressive industry increases over time. This force is specific to goods and services whose production has been affected by tech progress. For example, from the perspective of digital cameras: a dollar today is worth much much more than a dollar from the 1970's.

From the perspective of some industries, say orange juice, the value of a dollar might stay constant. Maybe the new high-tech fertilizer, automated picking machines, and efficient juicers perfectly counter the effect of an increasing money supply.

A money is replaced by another money. The In 1931, when England declared paper notes to be the new official money, the value of gold took a huge hit. Gold took another hit in 1971, when the US finally disconnected its paper notes from gold. Gold was being replaced by paper.