Let’s Get Real About Money

Throughout the world, people suffer from a serious perception error that has inhibited them from taking concrete steps to protect themselves from inflation or deflation. The error is called the “money illusion ” – the belief that a nominal unit of currency is the best measure of value, even though its real value is unstable.

Historically, failure to protect against inflation or deflation has helped spur calamitous outcomes. When spectacular inflation hit Germany in 1923, it wiped out the real value of the (unhedged and unindexed) life savings and social-security benefits of millions of people, whose anger contributed to the rise of Nazism.