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Question inspired by Youtube video: Game Theory: Fallout Bottle Caps are Worth HOW MUCH?!?

I am going to use Fallout world as example, but I would like to discuss general economy terms and not specifically Fallout.

So, lets start with Alternate history Earth, in late sixties: World War III happened. It was nuclear and managed to wipe the civilization as we knew it.

Some people managed to survive "on the ground" and some managed to survive thanks to the fact that they went to the underground bunkers.

Those who survived on the ground managed to rebuild some type of societies. Some are religious, some are governed by dictator, some are democracies.

The people on the ground meet, sometimes they fight, sometimes they trade. For whatever reason, all different group of people accept bottle caps as form of currency. No other currencies are accepted, if you do not have any bottle caps, you can barter the stuff you have for stuff you need.

Now the question: Can we expect that prices will rise during the time?

Things to consider:

  • There is no "central bank" and no institution to grant you exchange of bottle caps for something else valuable.
  • There is no central body of government, only local "governments" with different approaches to law
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Inflation is a result of the currency increasing. If there's more and more bottle caps, then it's value will decline.

For example, if it takes one hour to find 1 bottle cap, and 1 hour to make some bread, then you can say that 1 bottle cap is worth 1 piece of bread.

If for some reason it become easier to find bottle caps, (let's say in an hour you can find 2 bottle caps), then 1 piece of bread will be worth more (2 bottle caps).

On the contrary, if it become more and more difficult to find bottle caps, then there value will be higher and higher. (This is the case for bitcoins I guess).

Remember the value of something in general is subjective. Currency is just an easy way to trade things.

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If there is meaningful rebuilding after the apocalypse, then there is probably deflation.

There is only a limited number of bottle caps to be found. The easy-to-find ones will be found early. After a couple of years, still hidden bottle caps will be hidden very well.

If there is economic growth as mankind multiplies and rebuilds, the size of the economy grows faster than the bottle cap supply. That means the bottle caps will be worth more over time.

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If the currency is bottle caps, you can bet on it.

Some enterprising soul somewhere is going to figure out how to make bottle caps, thereby increasing the money supply. This is essentially the very definition of inflation.

In a barter economy, since real goods and services are exchanged, inflation is historically non-existent (using the money supply definition of inflation). In non-fiat currency, e.g., noble metals, inflation of the more general definition (rising price of goods and services) tends to be low or non-existent historically over time unless war or other scarcity problems arise.

Post-apocalyptic economies in general are very unlikely to be fiat currency and are far more likely to be barter economies. Scarcity or lack thereof will control whether prices rise or fall. Most likely that some prices will rise and others will fall. Working electronics will clearly rise in price over time. Price of fish is liable to fall since the oceans would likely replenish due to diminished human population. You could afford to eat lobster every day -- just as lobster was commonly fed to early American slaves because it was so cheap.

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Inflation is also driven by demand and offer on the market. If the demand surpasses the offer the prices will increase, resulting in inflation.

If one specific good become harder to acquire, either because one crazy guy nuked a city by accident or because the demand is increasing faster than the offer, the prices will rise. Prices increase because many people want weapons (for example) but this demand cannot be met anymore. Merchants can increase their price as long as their is someone who can afford it. They know that they will sell their goods anyway.

If a bunch of super-mutants attack an iron mine, the production will stop and everything relying on this iron will suffer from the attack. The price of all the goods made of iron will increase because it become much harder to find.

Not just iron but metals in general will be hard to find. Finding and exploiting new sources of ore might be very difficult in a dangerous post-apocalyptic world. People will need to find any scrap they can. They will rely on recycling and reusing the metals. The quantity available will be limited. The demand will rise overtime as population increases (and the demand at the same time) but if they can't find new sources of ore, the prices are doomed to increase.

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  • $\begingroup$ "If one specific good become harder to acquire, either because one crazy guy nuked a city by accident or because the demand is increasing faster than the offer, the prices will rise." What you are describing is a price rise, but not inflation. Inflation is a general increase in prices due to an increase in the money supply. One of the evils of inflation is that it disguises specific price rises that occur due to changes in supply of that commodity, thus drowning out the information and changed incentives these specific price fluctuations provide. $\endgroup$ – Lostinfrance Nov 24 '15 at 18:07
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Unlikely. A surviving community will stick to trade with things of actual, not nominal, value.
One possible scenario is the following:
Antibiotics are initially very valuable.
Some of the survivors are a sufficient team of medical-industry specialists.
While everyone are busy with learning to start a fire, those guys have restarted a medical factory and are churning out meds on an industrial scale.
What was very expensive at the time, is now widely available. People who stocked on meds now have been made poor via inflation.
The world is now a bunch of people struggling with basic farming but they have all the pills you ever thought of.
In the time between Ground Zero and full output of the meds factory, you will see a crazy inflation in the value of meds, as a currency.

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