25 Oct 2006

Inflation Under Control?


The Von Mises Institute doesn’t think so. Mark Brandly observes

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.

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Dominique R. Poirier

Although I am not economist, this statement gets me scratching my head. Trouble is for me that I am totally unable to see the way this statement is supposed to be understood.
But, as a man of good will, I believe, I am going to make a try.

So, if the money supply had been thus fixed, and in considering this statement means something has not been properly handled at some point, we ought to pay 12¢ for a hamburger. At such rate, and unless I make a mistake, it means that this same hamburger would cost no more than 0¢ sometimes in a near future; and the same for a car and a house sometimes later. Did I misunderstand something at some point? I’m afraid so because something puzzles me.

Never mind, I’m going to make another attempt along another way of seeing things.

So, if I had bought a house for $45,000 in 1959, then I couldn’t expect to sell it for more than $9,000 today, and so I would have lost $36,000 dollars, that is to say, quite a lot of money according to those standards and calculations. Unless I make a mistake, once more, it goes without saying that this rule would apply the same way to antiques, paintings, and even to the stock market.

So, antique stores would no longer exist then; and estate agents too. Holly cow! Banks would no longer exist too, then? Right?

But, how could I buy a house and a car then?

Is that what this statement means, or I am a simpleton?


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