occurs during the inflation process

" "

occurs during the inflation process and; (2) the permanent shifts in

wealth and income that continue even after the effects of the increase in

the money supply have worked themselves out. For the new equilibrium

will reflect a cha nged pattern of wealth, income, and demand resulting

from the changes during the intervening inflationary process. For

example, the fixed income groups permanently lose in relative wealth

and income.²

If the concept of a unitary price level is a fallacious one, still

more fallacious is any attempt to measure changes in that level. To use

our previous example, suppose that at one point in time the dollar can

buy one dozen eggs, or one-tenth of a hat, or two pounds of butter. If, for

the sake of simplicity, we restrict the available goods and services to just

these three, we are describing the purchasing power of the dollar at that

time. But suppose that at the next point in time, perhaps because of an

increase in the supply of dollars, prices rise, so that butter costs one

dollar a pound, a hat twelve dollars, and eggs three dollars a dozen.

Prices rise but not uniformly, and all that we can now say quantitatively

about the purchasing power of the dollar is that it is four eggs, or one-

twelfth of a hat, or one pound of butter. It is impermissible to try to

group the changes in the purchasing power of the dollar into a single

average index number. Any such index conjures up some sort of totality

of goods whose relative prices remain unchanged, so that a general

averaging can arrive at a measure of changes in the purchasing power of

money itself. But we have seen that relative prices cannot remain

unchanged, much less the valuations that individuals place upon these

goods and services.³

Just as the price of any good tends to be uniform, so the price, or

purchasing power of money, as Mises demonstrated, will tend to be

2 On the changes in relative prices attendant on an increase in the money supply, see

Mises, Theory of Money and Credit, pp. 139-45. 

3 For more on the fallacies of measurement and index numbers, see Mises, Theory of

Money and Credit, pp. 187-94; idem, Human Action: A Treatise on Economics (New

Haven, Conn: Yale University Press, 1949), pp. 221-24; Murray N. Rothbard, Man,

Economy, and State (Princeton, N.J.: D. Van Nostrand, 1962), 2:737-40; Bassett Jones,

Horses and Applies: A Study of Index Numbers (New York: John Day, 1934); and

Oskar Morgenstern, On the Accuracy of Economic Observations, 2^nd rev. ed. (Princeton

University Press, 1963).