Does money lose value because a) inflation or b)we could invest money now and gain interest on it, or it's a combination of both
I always found this basic concept to be confusing. In school we were always taught that $100 now could be invested in order to get more money in the future through interest rates. Thanks!
You find the time value of money concept confusing?
Money today is worth more than money in the future for both of those reasons.
If this is a serious question:
-Money "loses value" over time because of inflation. I pay $1 for a yogurt today and I may pay $2 for a yogurt 20 years from now, so in terms of the amount of yogurt $1 can buy, the value of a dollar was cut in half. The concept here is that the only thing that matters is the amount of "real" stuff I can exchange a dollar for. The amount of "real stuff" I can exchange a dollar for generally falls over time, which is called inflation.
-The other concept which I'd say is actually quite different is opportunity cost. When I am considering an investment in X, I have to evaluate the return I expect from that investment based on the return I can get from investing in different projects A, B, C, etc. Expected inflation will be a part of the expected future return on an investment, but in this context what I really care about is the rate I can earn on alternative investments, which usually (hopefully!) will be higher than inflation.
So basically these are distinct concepts. Money doesn't lose value because I could have made money if I made a certain investment. But when considering making an investment the expected future return on alternative options is the benchmark to have in mind. In other words, in making investments the value of a dollar today vs tomorrow should be discounted at a rate considering opportunity cost, not inflation only.
Also due to the cognitive processes and risk assessment of most (likely all) living beings. The time value of money is conceptually rooted much more in consciousness of mortality and the uncertainty of the universe than it is rooted in inflation.
And decay and entropy - don't forget entropy.
That is a key reason why gold has been a store of value for so long in human history. It does not decay, it does not putrefy, it does not rust.
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