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Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

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Chapter 5

Common Misconceptions Regarding the Price Level

Today, in any discussion about monetary affairs in academia, in financial markets, and among policy makers, the price level is of inordinate importance. “Price level” here means any of the broad-based statistical averages of prices in the economy, such as the consumer price index or the producer price index, that are considered good representations of money's purchasing power.

The Price Level and Monetary Stability

It would not be an exaggeration to say that a reasonably stable price level has become the accepted definition of good money. Of course, this does not mean that complete price level stability is sought by policy makers or by the economists who advise them. The shift from inelastic commodity money to elastic paper money was consummated precisely in order to allow the constant expansion of the money supply, and, as we have seen and as is not contested by the mainstream, this will lead to an ongoing decline in money's purchasing power. Today's macroeconomic consensus maintains that this is helpful for growth. In the preceding chapters we have seen that this is not the case. Be that as it may, a too-rapid decline in money's purchasing power is deemed undesirable and “good money” is thus defined as money the purchasing power of which diminishes constantly but at a moderate pace.

The fixation with the price level is understandable if we consider that an accelerating decay in money's purchasing power has the potential ...

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