Irving Fisher’s “The Money Illusion” is a life-changing economic treatise because it strongly advances the principle of thinking in terms of purchasing power rather than nominal dollars. We all have the intuitive sense to recognize this over long periods of time, as we know when we hear stories of grandpa making $1 per day or buying five-cent milk shares.
We are less cognizant of this over the intervals of our own life. If you have a $500,000 collection of investment assets, and inflation runs at 3.5% per year, you must have $517,500 in total at the end of a twelve-month period in order to maintain the status quo. How many people would correctly observe that their purchasing power had diminished if their account stated $515,000 at the end of the period? Not many.
In that spirit, I have paid attention to an unlikely source to gauge metrics of purchasing power–prisoners. … Read the rest of this article!
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