The rising 'cost-of-living': why is it so?

The price and purchasing power of the unit of a product are one and the same. … While recognising the extreme difficulty of arriving at a measure, it should be clear conceptually that … the purchasing power of is the inverse of whatever we can construct as the price level or the level of overall prices. In mathematical terms: PPM = 1/P; where PPM is the purchasing power of [money] and P is the price level. (See Diagram 1).

When purchasing power decreases … say due to an increase in tax, regulation and/or money … this means that cost-of-living increases. Unlike tax and regulation (even income tax or energy regulation), increasing or inflating the money supply impacts on the entire economy over time as: 1) the boom-bust 'business' cycle, reflected in higher prices (and higher profits) for some in the boom; and 2) ultimately 'inflation', reflected in higher prices (and lower profits) for most if not all. This is discussed in more detail in another recent LibertyWorks piece be me entitled "Quantitative Easing by Stealth?". By the way, tax and regulation put upwards pressure on prices and downwards pressure on purchasing power … not through increased demand for goods and services like money does … but through decreased supply for goods and services. Rothbard illustrates what happens to purchasing-power of money (PPM) when money supply (M) is inflated:

Having too much money 'burning a hole' in their pockets, people spend the [extra] cash balances, thereby raising individual demand curves and driving up prices. But as prices rise, people find that their increased aggregate of cash balances is getting less and less excessive, since more and more cash is now needed to accommodate the higher price levels. (See Diagram 2).

All government policies either: A) reduce or remove market interventions; or B) add to them. "A" reduces the cost-of-living, whilst "B" raises it. Rothbard reminded that, in many ways, the history of humanity can be seen as a 'race' between 'Bigger Government' (and "B") versus 'freer markets' (and "A"):

Always [people] – led by the producers – [have] tried to advance the conquest of [their] natural environment. And always [people] – other [people] – have tried to extend political power in order to seize the fruits of this conquest over nature. … In the more abundant periods, eg after the Industrial Revolution, [freer markets took] a large spurt ahead of political power [including over government intervention], which ha[d] not yet had a chance to catch up. The stagnant periods are those in which [such] power has, at last, come to extend its control over the newer areas of [freer markets].

To win this 'race' over time for 'freer markets' will require not only winning 'minds' through sound economics but also 'hearts' through sound 'ethics' … and maybe sadly 'wallets' through buying off cronies (eg taxis), threatening governments (eg succession) and/or bypassing cronies & governments (eg Uber).