The same is needed for money, though perhaps not with such high precision; but it's vital that when a unit of money is used to measure the value of something, the standard of measure does not change significantly over time. If for example there's a shortage of rice and its price rises 10%, everyone's calculations of how to distribute the supply and how much to plan for the next season is thrown way off if the cause of the apparent price hike was not bad weather, but an unadvertised change in the measure!
We're fairly familiar with the reduction in the purchasing power of what is supposed to be a fixed measure of value; the dollar. The prices of grocery staples for example appears to rise, even though their nature remains fixed; since items that we see over several years have had their development costs recovered long ago we'd expect their prices to fall, or at least to stabilize. But instead they go up; because the yardstick, the dollar measure, has shrunk.
The shrinkage is of about 99% since 1913. What could be bought then for one cent, now costs one dollar; so I reckon its average per-year shrink rate has been a hair over 4% a year; and the FedGov has, via its subcontractor the Federal Reserve Bank, had full control over the dollar's value for each of those 112 years.
One money measure that is not elastic (because governments can't control it) is gold. Its exchange rate doesn't vary uniformly, but long term, it's a good standard. In 1920, $20 would buy one ounce. Today, you'll need $3,400. So again, the "dollar" has shrunk to 1/170th of its value then, in 105 years; that's an annual loss of 4.8% a year. So, 4 or 4.8, take your pick.
The shrinking or elastic money yardstick brings other serious deformities, not just prices that falsely appear to rise. Here are two.
1. Passive saving isn't worth it. Place money not immediately needed in a bank account yielding 4%, and the apparent yield or gain (which may even be taxable!) is offset by the value shrinkage above. If the yield is under 4%, it will actually lose value. Some "nest-egg"! Only by working at it actively, on the stock market, can a net positive yield be obtained.
The result is that less money is saved, than otherwise; that is, less capital is invested in productive business, and therefore the whole society's progress is slower than it would otherwise be, with a proper, fixed or inelastic measure of value.
2. Real wages fall. Someone contracts to work for $1,000 a week, but after a year that amount will buy only $960 worth of useful stuff. His real wage fell 4%, even though he delivered the same useful labor he had promised. That's deceptive. The employer is getting 4% more labor than he's agreed to buy, free of charge; the employee is 4% enslaved.
That's unless the nominal wage is increased by 4% (which is often the case.) But that's a variation to the contract - a new agreement. Further, if (as may well be the case) the worker's 1-year experience on the job has taught him how to increase his output by (say) 3%, he will be equitably rewarded by a raise not of 3% but of (3+4=) 7%. Will he get it?
Again, the FedGov has full control over the value of the dollar. So from the above, it is 100% responsible for rising prices which make it so confusing to shop, for falling savings rates which slow down the growth in prosperity for which we all work, and for a deceptive and complex way to reduce wages, as a direct attack on the wellbeing of the less numerate part of society.
Government: who needs it?
