I always like finding new ways to look at numbers when it comes to personal finances (yes, I’m a geek in that way). It was with this in mind that I read an article over at Mises.org about how the expansion of monetary policy has had a significant impact on the prices that we pay today:
…the expanding money supply over the last 46 years has resulted in a current price level over 34 times higher than it otherwise would have been.
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.
Currently, price inflation is thought of as an increase in the price level above some previous level. However, if we think of price inflation as the increase in the price level over and above what the price level would have been in the absence of the expansionary monetary policies, then this gives us a more accurate picture of the effects of government policies. The estimations provided here show that the price level effects due to government manipulation of the money supply are much larger than indicated by standard price indices.
What this does show is that
it’s not only inflation that has caused the prices of the goods we buy (our everyday personal finances), but also how the government runs and increases the money supply. when the government says that they are trying to fight inflation, their policies and increases in money supply are a main cause in the prices of the goods we buy (our everyday personal finances) to increase. There isn’t much we can do about this on an individual level, but the article gives a good foundation where you can understand that the numbers that the government gives in relation to inflation should be taken with a grain of salt.