Under a fiat currency regime, the purchasing power of currency will continuously be devalued over time as new currency is printed to settle previous debts. In an ideal world, productivity and growth will increase proportionally with the nation’s money supply. Thus the value of money remains stable and static.
Unfortunately, since the dawn of mankind, this theory has never been realized as debt has always superseded productivity under this monetary policy. This is often counter balanced by increasing the money supply in the hopes that new businesses and thus productivity will grow.
What about efficiency of production? Towards the middle of a crisis, innovation is spurred as the cost of living increases and businesses are encouraged to cut costs while maintaining quality. Assets that are were once used by larger companies, now bankrupt, are bought by new smaller companies and they usually utilize these resources with great efficiency to survive the current economic crisis.
This can be seen today as automobiles move into smaller, technologically advanced engines. Outsourcing is booming to reduce costs from all areas of a business. One internet marketing company did a study where they found a trend in advertising towards increased R.O.I. Many companies have shifted their marketing budgets away from traditional marketing mediums like T.V, print, radio and moving towards online media such as search engine optimization, media buying and social media. This paradigm shift is simple to explain; the cost of customer acquisition is significantly cheaper through online methods where R.O.I’s can be as high as three times more than traditional media.
Clearly the future looks bright even though the current economic climate does not seem so. Like the years before us, the free market will eventually balance itself and this moment of hardship is simply that: a moment.