Inflation & Prices
By Adrian Ash
June 16, 2008
A short note on the Consumer Price index...
SURELY the greatest marketing coup of the twentieth century –
besides making cigarettes taste of freedom and youth rather than the Sandakan
death-march – was kidding the world that "inflation" meant rising
prices.
Long mistaking symptom for cause, what hope do we have of defending
our money today?
"The word 'inflation' originally applied solely to the
quantity of money," as Henry
Hazlitt, sometime Newsweek and New York Times editor, put
it in 1965. "It meant that the volume of money was inflated, blown up,
overextended.
"To use the word 'inflation' to mean 'a rise in prices' is to
deflect attention away from the real cause of inflation and the real cure for
it."
In short, words matter – and not least when people try to save
and plan for the future. Because our drive to label the world dictates our
response to it. Use the wrong label, and you're sure to screw up both your
understanding and your reactions from there.
"Over the past 100 years the retail market has
changed tremendously," notes Alan Kackmeister in a recent paper for the
Journal of Money, Credit & Banking. "Transportation is easier. Stores
are larger and less personal. Product brands have become more important. Food
and other necessities make up a smaller share of consumption expenditures."
To this list of cost-cutting advances, Kackmeister could have added
no end of technological and cut-price progress – mechanized and robot
production, chemical fertilizers, those two billion people pulling down
wage-costs after the Iron Curtain and Great Wall of China both fell to the
globalized market...
Yet despite all these advances in making everyday stuff, what's now
called "the cost of living" has barely ever failed to stop rising. The
official Consumer Price Index in the United States has risen 11 times over in
the last 90 years. Here in Britain, one pound now buys less than 3% what it did
in terms of "making ends meet".
Good [thing] we've got so many more Dollars and Pounds to help pay for
things, right?