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The Cost-of-Living Secret They Don’t Want You to Know

By Vinay Kolhatkar

May 30, 2025

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In Australia, the two major political parties are the Labor Party (the Left) and the Coalition, which is an alliance between the Liberal Party (supposedly classical liberal, but increasingly less so) and the National Party (also increasingly inching toward the Left).

Every Australian voiced an opinion about the cost-of-living crisis during the months leading into the Australian federal election held on 3 May, 2025. The election itself was seen as a mandate about who can deal with this crisis better. But both Labor and the Coalition proposed various subsidies—to fuel, medicines, housing, HECS (student debt)—as policies to help cope with the crisis.

The assistance policies treated inflation like an exogenous event—like category 5 cyclones or volcanoes erupting.

Some observers blamed retail supermarket chains. Some demonized immigrants. To be sure, a sudden large intake of immigrants did contribute to demand for housing. But all these observations were way off the true mark.

The assistance policies treated inflation like an exogenous event—like category 5 cyclones or volcanoes erupting, where the emphasis ought to be on early detection, forewarning, and rescue—because they are not preventable.

Yet, economic history tells us that all inflation can be and has been prevented for decades, centuries even—with startlingly good results for economic growth.

Let’s start by noting the price of enjoying a cup of coffee. Around 50 years ago, in 1975, the average price of a medium-sized cup in Australia was 60 cents. 25 years ago, at the turn of the century, we could buy a middle-sized cappuccino for two dollars (Australian). In 25 years, it had shot up over three times. In 2020, just before the pandemic, this medium-sized cappuccino was four dollars. It had doubled in 20 years. Now, in 2025, just five years later, it’s costing us almost six dollars, again almost three times the cost 25 years ago, and is forecast to reach eight dollars by the end of the year. Ouch.

It’s not just coffee that has gone up. A plate of fish & chips at the local bistro is about 20 dollars. A middy of beer at a pub is around 8 dollars. House prices and rentals have skyrocketed. Private health insurance is through the roof. Going to the movies with the family, buying popcorn and ice-cream for three children, can now set you back a whopping hundred dollars.

Why are endemic price rises across the board a scientific scam?

All of this is the result of the largest scientific mistruth of all time. Why are endemic price rises across the board a scientific scam? It’s because people in government love this trick. They and their cronies benefit from it while the rest of us suffer. Their crony friends include economists who benefit from research grants and consulting gigs allocated by governments. They keep telling you that a little bit of inflation is required for economic growth, that some agency is required to keep inflation between two and three percent per annum. This is manifestly absurd. It is a scientific scam because social scientists have been propagating a mistruth for over a hundred years (from 1915).

For one hundred years before the swindle began, from 1814 to 1914, the United Kingdom had negative inflation.

For one hundred years before the swindle began, from 1814 to 1914, the United Kingdom had negative inflation. Prices in 1914 in general were less than they were in 1814. This is logical. Technology does not go backward. It stays the same or moves forward in spurts. In today’s world, the scientific and technological knowledge of humankind does not regress. When the library of Alexandria burned down, knowledge was lost. Nowadays, knowledge is stored in multiple locations, including virtual locations. Wars can and do set economies back. But very little else except government overspending can diminish the economy.

Why did prices fall slightly in the UK? In the UK, money was on a gold standard. The market was largely free but for some tariffs from 1870 onwards. Naturally, the market performed wonders. The aggregate supply of goods shot up. But the supply of gold did not keep up with the pace of economic growth, so prices went down in tune with increasing productivity. That’s how it should be. Such deflation is excellent news. Gold producers do not have a limitless incentive to explore the more remote sources of gold. They will never outdo the demand for money. The United States during this period was on a bimetallic standard of silver and gold. As a result, even in the United States, prices in 1914 were about the same as they were in 1814, despite the inflation suffered during the American Civil War from 1861-1865.

When inflation of the money supply is removed from the economy, productivity soars.

Now, even while overall inflation was zero to negative during the 19th century, both countries had phenomenal records of economic growth. This is because, when inflation is absent, there is little incentive to undertake speculative buying and selling of consumer assets like real estate for investment, and far more incentive to find and fund genuinely productive capital assets. When inflation of the money supply is removed from the economy, productivity soars. The historical record is crystal clear on this.

Even when gold is the only form of money, we can have paper money for the sake of convenience. But the government should only issue paper certificates that certify how much gold you are entitled to, at a gold-to-dollar ratio that is permanently fixed for all time, forever and ever.

One foot is twelve inches. A yard is three feet. One meter is a hundred centimetres. Those relationships are unchangeable for all time. Otherwise, all hell would break loose in the world of technology. The same is true of the economics of money. For money to have true value, paper money needs to be a certificate of weight, backed by the real item. Today, you can buy a 10-ounce gold bar from Perth Mint, which has a great reputation for integrity—which means you can sell the Perth Mint certificates for their true value.

Now, imagine that all money is like that. A 10-ounce gold bar costed about A$52,600 during May 2025. One troy ounce is 31.1 grams. That’s roughly $170 per gram. In other words, the Australian dollar is worth 5.8 milligrams of gold. If we permanently set the dollar, as a unit of weight, to equal 5.5 milligrams, say, we would have a gold standard. (When the United States passed the Gold Standard Act of 1900, the dollar weight was fixed at 1.5 grams of gold.) If we had stayed on the gold standard, the Australian dollar today would have been worth about 1.1 grams of gold, instead of 5.8 milligrams. In other words, over a century, our money has been devalued by a factor of 190. The United States dollar was set in the Gold Standard Act at US$20.67 per troy ounce, and that price today is about US$3,308, a 160 times devaluation.

Governments devalue money because it allows them to spend on schemes that purportedly help the needy or subsidize the so-called renewables.

Governments devalue money because it allows them to spend on schemes that purportedly help the needy or subsidize the so-called “renewables,” but they do not rake in enough taxes. They just spend. Recklessly so. They monopolize resources and limit productivity. The central bank can create money limitlessly by monetizing its purchases of government debt. We call this fiat money. It is dangerous. We may never get hyperinflation in Australia because the Reserve Bank of Australia (RBA) is not completely irresponsible, but look at what even modest, nonstop three percent rises do—prices double every 25 years. Worse, it can easily get out of hand and approach 10% annual inflation, in which case, prices soar to 10 times the original in 25 years. This is the true cost-of-living crisis: diminution of private-sector production and a simultaneous expansion of the fiat money supply.

It creates a money illusion. House prices and rentals have not skyrocketed in gold-weight terms, but salaries have reduced in real value. Post-tax salaries have fallen even more as tax rates are progressively higher. (The CPI adjustment to tax slabs is insufficient.) The cost of cappuccinos, beer, and fish & chips have not shot up in gold-weight equivalents. Consider this: In the UK, the price of gold to the pound hardly moved for 200 years (1717-1917). Now, that’s the permanency we need!

It’s not too late for Australia to adopt at least a partial gold standard and permanently fix the dollar-to-gold ratio by making the dollar a unit of weight. The federal government will be forced to reduce its reckless growth and start balancing its budget. That’s the dirty secret they don’t want you to know. They want you to keep blaming Woolworths and Coles, negative gearing and immigrants, Labor and Liberal, so that no external market force disciplines the government. Alternately, the government can subject itself to a fiscal discipline normally reserved for corporate debt ratings—to secure a good debt rating, corporates need to have revenues well above expenses, asset values well in excess of their debt, and high levels of liquidity.

It’s a debate worth having.

I am dead sure of this diagnosis—so dead sure that I am issuing a challenge to Dr. Phillip Lowe and Glenn Stevens, both former Governors of the Reserve Bank of Australia (RBA), to an Oxford-style debate. My panel and I will argue that the RBA deserves to be dissolved and that Australia should get back to an actual or a mimicking/partial gold standard (which it abandoned almost a century ago)—a gold standard which also dispenses with monetary policy altogether. It’s a debate worth having.

Are you up for it, Dr. Lowe and Dr. Stevens? It’s time to reveal the dirty secret to Australians.

 

 

This essay was first published in Spectator Australia (without the last two paragraphs) and is republished with permission.

 

 

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