The Money Illusion

In economics, money illusion refers to the tendency of people to think of currency in nominal, rather than real, terms. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value). This is false, as modern fiat currencies have no intrinsic value and their real value is derived from their ability to be exchanged for goods and used for payment of taxes.

 

 

Note how the stagnant stock market in the 70’s was actually a brutal decline in real value. The 1982 dollar was worth only 1/3 of the 1965 dollar … inflation ate that much value.

via Money illusion – Wikipedia, the free encyclopedia.

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