It’s very common to hear price level, basket of goods, and other terms that don’t work well for the value of money.  Many will say money is like a ruler, but this is a bad analogy.  This implies the ruler can be used for multiple people.  The value of money is based on acting individuals.  One individual’s “ruler” can’t be used by another.  The analogies and metaphors can’t be used for the value of money.  The value is always subjective.

Additional money doesn’t make people richer.  More money is printed in the name of stimulus.   More money is chasing the same amount of goods.  Goods don’t magically appear.  What is called “stimulus” is actually a sedative.  The measurement doesn’t change for everyone equally.    The early receivers can buy goods at the old prices.  The prices will rise by the time the newly printed money makes its way to you.

Money is never neutral.  Money can’t be neutral with acting individuals.  As Mises pointed out, “I wish to emphasize that in a living and changing world, in a world of action, there is no room left for a neutral money.  Money is non-neutral or it does not exist.”  Human action is dynamic.  No one’s price level can be equal to anyone else’s.  Likewise, no one’s basket of goods is equal to anyone else’s.

A basket of goods is a terrible way to determine value.  Not only are no two baskets the same, but what goods are in the basket?    The basket may be more or less expensive based on what’s in it and when it’s paid for.  If the basket is getting too expensive, replace an expensive good with a cheaper one.  That’s exactly how they measure purchasing power.  It’s not just pointless to measure purchasing power with a basket, but it’s extremely misleading.

It’s a fallacious idea that value can be measured or stabilized by schemes.  Using various terms to measure money are completely ridiculous.  Prices will tend to rise when the printers are used.  Prices tend to fall on the free market.  If prices rise too much in the basket, they replace a more expensive good with a less expensive good—abracadabra—inflation isn’t that bad.  The purchasing power of money is based on the quantity of money chasing goods and services.

Reference

Ludwig von Mises; Money, Method, and the Market Process