One of the positive indicators of our so-called economic recovery bandied about not only in the media but also by our monetary lords and masters at the head of central banks is the idea that rising prices (particularly in the housing market) are a sign of economic recovery. This mistaken belief is part of a wider myth that views the economy as a big number, a number which, if going up, means things are good and getting better, and if going down means the situation is bad and getting worse.

Theoretically the market price for any good is never “good” or “bad”. It simply a function of supply and demand for that good. However, if anything, relatively high prices indicate a scarcity of goods relative to the money used to buy them rather than an abundance. This situation may be a localised boon to those who are in the business of selling the scarce good, but for those of us on the other side of the transaction having to pay more hardly suggests a general increase in our prosperity. For if society is getting wealthier and producing more goods we should find that we are be able to buy more with the same amount of money rather than less – hence, prices should decline and not rise.

What is of course meant by the “recovery” of rising prices is precisely a localised recovery and improvement for a select group of people – those who borrowed cheap money heavily during the boom (mostly the politically connected big banks and investment houses) and ploughed it into assets. They can now breathe a sigh of relief as the prices of those assets once again begin to rise with the new round of monetary inflation. The rest of us, on the other hand, have to sit by and watch the purchasing power of our wages drop, unable to continue to afford to buy things because the “recovering” prices put them out of our reach.

A general recovery is not based upon rising asset prices buoyed up by paper money. It is created by a sound monetary order that allows entrepreneurs to allocate resources to where they are most urgently desired by consumers. The result should be a gradual secular price deflation, so that the money in the hand of the lowest earners gradually increases in value, enabling everyone and not just the super rich to grow wealthier and more prosperous.

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