We have a postscript to last weekís article. We said that rising prices today are not due to the dollar going down. Itís not that the dollar buys less. Itís that producers are forced to include more and more ingredients, which are not only useless to the consumer. But even invisible to the consumer. For example, dairy producers must provide ADA-compliant bathrooms to their employees. The producer may give you less milk for your dollar, but now theyíre giving you ADA-bathroomíed-employees. You may not value it, but itís in the milk.

On Twitter, one guy defended the Quantity Theory of Money this way: inflation (i.e. monetary debasement) is offset by going to China, where they donít have an Environmental Protection Agency. In other words, the Chinese government does not force manufacturers to put so many useless ingredients into their products as the US government does.

He thought this comment disproved our argument. But actually it reinforces it.

In part II of Keithís theory of interest and prices, he talks about buying a pair of Levis jeans in 2013 for $5 less than he paid for the same jeans thirty years previously, in 1983. Those who push the inflationtheory often assert that the official government inflation number is a lie. The real rate, they tell us, is much higher.

OK, suppose the true rate of monetary debasement were running at 10% per year. If that were true, then a $50 pair of jeans in 1983 should have sold for $872 in 2013 (and $1,545 today). Obviously, the price of jeans is nowhere near this high.

The gold commenter guy asserts that the price is not so high, because of regulatory arbitrage.

But is it plausible that regulatory arbitrage can turn a 17-fold increase into a 10% cut in price? That you can get $872 worth of product for $45? Obviously not.

His comment actually proves our point that the US government is forcing manufacturers to put in useless ingredients. If you can find a jurisdiction where the list of useless ingredients isnít too big, you can manufacture, warehouse, distribute, and retail jeans for 10% less than you could thirty years earlier.

The prevailing view of economics is arguably the neoclassical school. This school attempts to marry supply and demand with Keynesian ideas. In money, the consensus is clear. It is entirely uncontroversial (except for our merry little band). The Quantity Theory of Money holds that the value of a currency is inversely proportional to the number of units of it. Value = 1/N.

This ideas is based on the supply and demand model. If the supply of a currency goes up (without regard to how, by what mechanism), then its price goes down. And the price of the money is set in terms of consumer goods. So the price of the dollar is 1/milk for example