The purpose of price indices is to provide an estimate of the increase in a price level over and above some constant price level. However, price indices do not provide us with a measure of the actual increase in prices that is caused by our government’s monetary policies. Government officials have an incentive to conceal how much their monetary policies affect the prices of the goods we purchase. One way to do this is to ignore, as price indices do, part of the price level effects of monetary policies.
[…]
Expansionary monetary policies drive prices up. However, if the money supply was fixed, prices would tend to fall. Any potential decrease in the price level is ignored by the CPI and by price indices in general. To estimate the total price effect of expansionary monetary policies, we must also consider the potential decrease in the price level that would have occurred in the absence of such monetary policies.
Let’s put this in everyday terms. Suppose these estimates represent the changes in the prices of goods such as hamburgers, cars, and housing. According to these numbers, a hamburger that cost 60¢ in 1959 would have cost $4 in 2005. If the money supply had been fixed, however, that hamburger would only cost 12¢ today. Similarly, a $20,000 car in 2005 would have cost slightly less than $3,000 in 1959. Again, without the monetary effect on prices, that car would only cost $600 today. The price of a $45,000 house in 1959 would have increased to $300,000 in 2005. With a fixed money supply, that house would cost $9,000 today.
Government doesnt control the “value” of money. The Federal Reserve is a PRIVATE COMPANY! They can pull money out of their ass and claim “this has monetary value” which they can do the same with used toilet paper. As long as we all agree this paper has “X” value, we use it.
Our money used to be backed up by precious metals (gold, silver, etc) which is why Fort Knox existed in the first place since he held the wealth of a nation’s worth. Now it holds the wealth of a monetary value that’s skyrocketed to oblivion since the Fed was introduced.
This would be good for who? We’re already not that competitive on the world market. Imagine the Dollar inflated even more!
This is all very confusing. Can I buy a $300,000 house with $9000 worth of used toilet paper, or not?
Hurray for Fiat currency!
But then with any luck we can all go to using Halliburton stock certificates as currency soon enough!
I suspect the same mechanism would produce salaries of $5,000 per year too.
RBG
FRAGaLOT,
The federal reserve is not a private company. Different corporations share a stake in it, and it is overseen by a committee with a presidentially appointed lead.
Fort Knox was not originally built to hold the countries “precious metals”. It was a typical Army base. Gold was not moved there until the US Bullion depository was created in 1937 as part of Roosevelt’s New Deal.
Look up “Gold Standard” in addition to the other topics you mentioned to get the real story. The ideas you stated are mostly false pop culture ideas on how the system works.
What would an iPod have cost in 1959? How does that figure into these numbers?
“Why We Should Have 12¢ Hamburgers and $600 Cars”
And only earn a buck a day! It goes both way, guys!
These kinds of complaints are ludicrous. As long as wages are increasing relative to inflation, it simply does not matter how high the government wants to inflate its money.
Wake me up when someone figures out how to massively lower prices AND keep our wages the same!
What a curious argument. So by fixing the money supply to that available in 1959, we end up with goods competing for a very limited supply of dollars. And just how is this supposed to be of benefit? We now have ten times (just a guess) the number of goods that were available in 1959 and twice the number of wage earners. But without an expansion of the money supply, then all prices and wages must decline dramatically in order to fit their total value to the fixed amount of dollars available. Deflation with a vengeance.
From my (limited) knowledge of high finance, I bet it would be damn tough to invest long term, knowing the dollar you spend today is going to be harder to replace tomorrow. Why invest at all? Far better to horde those dollars and watch its value grow.
#8
But, wages are not increasing relative to inflation.
“But, wages are not increasing relative to inflation.”
Mine are. If your wages are not, that’s something you’ll have to take care of.
Oh, and one more thing, exactly how are you surviving on wages equivalent to the 1930s?!
This would expand the economic gap even more. There would be no “New Billionaires,” old inherited money would be worth a LOT more than new money.
Now, for the people who are weird enough to like economics, is that a good thing? I’m skeptical.
This is *really* basic economics. What this article is arguing for is deflation (prices go down), which is the absolute worst thing you can do for an economy.
The problem is that if people think that their money will be worth more in the future (i.e., a car today is $5000, but only $4500 tomorrow), they tend to put off purchases, which means less spending, less economic activity and a massive economic depression. (This is one part of why the 30s were so bad.)
Inflation is bad for other reasons, but by far the lesser of two evils, which is why the Fed doesn’t target 0% inflation, but between 1 or 2%. Since they can’t get things exactly right, it’s better to have a little bit of inflation than have any chance of deflation.
What the article doesn’t say is that a 60.000$ a year salary would be only 1.800$ a year if it the money supply had been fixed…
#14…. ditto
Our paper money today is what is know as fiat currency. That is, it’s money by declaration – because someone says it’s money, not because of any intrinsic worth.
Throughout history every – and I do mean EVERY – fiat currency has eventually reached its true value.
Zero.
And that’s what we have to look forward to. Thus, I suggest the purchase of precious metals, real property, and the like. The dollar, like every other currency which is unsupported by something of true value, will eventually become absolutely worthless. And that time seems to be closer than we think.
Ken Johnson
Sand Point Alaska
These guys are dumb. Price indices measure the change in prices, exactly what they were designed to do. To measure the effect of monetary policies, look at the price of gold. The two factors are related.
#11 – Well bully for you, and thanks for your concern…
But despite your good fortune, our money buys less than it used to and wages are not going up to match inflation across a broad spectrum of Americans.
#8 – Not everyone lives on wages. Most pensioners get a fixed amount of money and that fixed amount rarely rises with inflation. But hey – as long as your wages rise each year (which is not the same thing as aggregate wages rising each year) then theft of pension value for the benefit of expansionist government is A-OK!
No one really wants to go back to the gold standard anyway. There won’t be enough money for the politicians to spread around so that we’ll put them back in office again.
For those confused about how a gold standard works, there are plenty of links to articles on the topic at Mises.org.
It happened after WWII,
After the men came home and found that women could work also.
Many found they could both work, and make a Good living and things were cheaper if both in the family worked. That was the big BANG.
An interesting thing happened, in about 1972.
A FAKE gas crisis, was a test to see how much Americans could afford.
The corps found out.
Soon after the oil price REALLY went up. From $0.35-$1 per gallon.
But consider that 60% of oil comes from canada, and 16% from california alone.
Prices havent stabilized sence.
Oil corps say “If you wont pay international prices, we will sell to other countries”.
There are so many middle men that its STUPID, And the only way to compete was AS Walmart has done…MAKE IT, or go to the Maker and get it at COST…
NOT cost, plus this comapany, + cost and this company, + cost and another company…
BUT, if you look at Walmarts prices, even being lower then others, they STILL have a VERY high margin…
As to middle men…Think about a maker that sells 1,000,000 at 1 time and sells to a company, that sells 1,000 at a time,
That sells to a company that sells 100 at a time,
that sells to a reseller…
NOW, as companies go, in the END, they are all owned by 1 person, or group. and they get ALL the markup for EACH sale. Say 10-15% each transaction. And the RESELLER has little alternative but to buy at the highest price that he can DEAL with. be it 10, 100, 1000, or how many he can afford to sell.
It USED to be that we could, as a Single purchaser, GO DIRECT…but not anymore.
It used to be, that we could make a GREAT extention cord at about the SAME price as it cost to buy one…DONT even try now…
It USEd to cost very little to have a hobbie, and make things by HAND, that you could buy…TRY IT…
Unless you can buy in 1,000 products at 1 time, you CANT save any money.
NOW the fun part.
It costs a company 2 times a persons WAGE to pay that 1 person.
Cost for ALL utilities, is sent to the consumer. Even tho POWER isnt that high. It is also a marketable GOOD, and is sold back and forth, until someone USES IT. considering that ALL the dams in the USA were built by the Government. And their price hasnt gone up.
Consider that EVERY tax a store has to pay, from shipping, GAS for shipping, insurrance, is ALL given to the consumer to pay.
Where do you look to CUT any prices…
Its a MARKET, and the head must be chopped off.
Every thing is considered a comodity, NOW…If they could do it, they would sell you OXYGEN(and they do). They would sell you WATER(and they do), they would sell you the ground you piss ON, if they could find a way(and they do)….
The price of a $45,000 house in 1959 would have increased to $300,000 in 2005. With a fixed money supply, that house would cost $9,000 today.
How would the housing market work in such a world?
How would mortgage lending work in such a world?
Who would buy a house – with fixed payments – when it would make more sense to sign a short-term lease – with the prices dropping at each renewal…?
Would mortagage payments decrease [adjusted: annually? every 6-months? quarterly?] as the value of money increased?
22,
In a fixed market, the value would be based on the PROPERTY. NOT the home, not speculation of value.
If you look at most property, its the HOUSE that costs the most…Knock it down and how much is it worth. THAT would be the value.
this reminds be of the de-value-ation of the confederate dollar as the Confederacy slowly lost the American Civil War – over time the money was worth less and less – and the confed govt didnt help by printing money live it was going out of style…
The only thing I didnt see here is that we would all be paid a LOT less
like i’d be making nothing…. but healthcare would be afordable lol
Its like the Banks, credit cards, and insurrance agencies…
ALL wanting your money.
Making Debt to EASY to get into.
Its also an idea to think about.
EVERY penny you pay for an item, that becomes profit, GOES WHERE??
Think of all the signs on the road, All the commercials, all the SPAM.
And a good share of that is considered an expence, and is deductable. but We dont get that deduction, the corp does.
Every racing car with a Logo..
All those Jeep Olympics, and racing programs..All those banners along the sidelines, end up costing YOU AND ME, money.
Think about the differance between Pepsi, and generic pop.
Whats the FULL price difference, dont consider SALES.
Pepsi is about $5 for a 12pk??
Generic is about $2.50??
AND think of the price of GAS…
1 gallon is 128 oz, a 12 pack is 144 oz…
and you dont want to pay $5 per gallon for Gas…WHY are you willing to pay that much for Pepsi??
my comment that you didn’t have the montary values of a penny