Money supply & wealth
If our national wealth doubles and the amount of money available remains the same, the monetary value of our property will fall by half (on average). Although prices have halved, this means that we are twice as rich, not half as rich. We have the same amount of money, but it will now buy twice as much as it did before.
Conversely, if the amount of money doubles (by printing money or "quantitative easing" at the central bank, or by allowing banks to expand credit beyond the limits of their monetary reserves) while our national wealth remains the same, the monetary value of our property will double (on average). Our actual wealth will remain the same, and a unit of money will only buy half of what it used to.
In practice, changes to the amount of money available are never spread evenly across everyone. When a central bank prints money, it typically lends it to the government and big corporations. No wealth has been created. The value of money is reduced.
Those in receipt of the new money have increased purchasing power relative to everyone else, until prices adjust to take account of the reduced value of money. Prices will adjust upwards in response to this increased apparent demand. But not everyone feels the increased apparent demand at the same time.
The original recipients of the new money get the initial and greatest benefit. Those who supply them will be first to feel the increased demand and first to increase their prices. For a while, the prices they charge to the government and the big corporations will increase more than the prices they pay to their suppliers, until their suppliers also adjust their prices to take account of the increased apparent demand. The same will go for the suppliers' suppliers, and so on.
Eventually, increased prices will filter throughout the economy, so that prices for everything have increased (i.e. the amount that a unit of money can buy has decreased) and relative prices are roughly back to where they started. Everyone who was not a direct beneficiary of monetary inflation has lost out. Those who were most steps removed from the beneficiaries of monetary inflation have lost most.
The government and big corporations no longer enjoy increased purchasing power unless the central bank expands money yet further. The risk of sales being underpriced in an inflationary environment causes vendors to try to preempt this devaluation of their property by putting up prices. Uncertainty over fair valuation introduces an additional element of risk (and therefore cost) into every transaction, deterring some transactions that would have been viable in a stable monetary environment.
In the short-term, inflation benefits some (the government and borrowers) and disadvantages others (property owners and savers), with no net benefit to our wealth. In the long-term, inflation destroys wealth.
