'Price stability'

Frank Shostak wrote a great piece on so-called 'price stability' last week at Mises.org. An excerpt:

When $1 is exchanged for 1 loaf of bread we can say that the purchasing power of $1 is 1 loaf of bread. If $1 is exchanged for 2 tomatoes then this also means that the purchasing power of $1 is 2 tomatoes. However, the information regarding the specific purchasing power of money doesn't allow the establishment of the total purchasing power of money. It is not possible to ascertain the total purchasing power of money since we cannot add up 2 tomatoes to 1 loaf of bread. We can only establish the purchasing power of money with respect to a particular good in a transaction at a given point in time and at a given place.

On this Rothbard wrote, "Since the general exchange-value, or PPM, of money cannot be quantitatively defined and isolated in any historical situation, and its changes cannot be defined or measured, it is obvious that it cannot be kept stable. If we do not know what something is, we cannot very well act to keep it constant."

Share this