# The Price Fall That Never Arrived

Technology cut the cost of making most of what you buy, but the money system is built to push prices up, so the fall in your cost of living never arrived. Why measuring inflation against zero keeps the missing fall invisible, and what the honest baseline is.

- Date: 2026-07-15
- Canonical: https://thenaturalstate.org/essays/the-price-fall-that-never-arrived/

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The official inflation number measures how much prices rose. It has no way to measure the price fall that never arrived, and that missing fall is a large part of what inflation costs you.

Technology cut the cost of making most of what you buy. That saving was real, and it was collected before it could reach you as a lower price. Our money system is built to push prices up, so the government and central bank create new money and credit year after year, and the new money cancels the price falls you should have received. Part of the saving reaches you as higher pay, late and unevenly. Much of the rest moves to whoever is closest to the new money, mostly people who already own the real things the new money is spent on, houses and shares above all, and the state itself. Measuring inflation against zero is what keeps the collection invisible, because zero was never where prices were headed. Under a money nobody can add to, the natural direction of prices is down. The honest baseline is that falling line, and honest inflation is the distance between where prices actually are and where productivity, our improving ability to make things, should have taken them.

## Where your saving went

A photo used to cost film, processing, and postage. Now it's free on your phone. When tools improve, the same goods take less to make. That holds for everything technology has changed the making of. It doesn't hold for housing, care, teaching, or building. In a market with real competition, a producer who keeps charging yesterday's price gets undercut by a rival who copies the cheaper way of making the goods and passes the saving on, so prices get [[why-everything-should-be-getting-cheaper|pushed down toward the cost of making one more unit]]. Where nobody can copy it, the saving stays with the business. Say prices were left to fall that way. The saving would reach you. Wages are sticky, so at first the rate you're paid per hour holds while your weekly shop gets cheaper, and your savings buy more year after year without you having to chase returns to get it. Where things get cheaper to make and prices fall with them, pay can drift down gently and still buy more, because the weekly shop gets cheaper by more than the pay falls. Under a money nobody can add to, that's the natural state of a free market. Falling prices are what progress looks like when the measuring stick holds still.

That's not what you experience, because our money can be added to. Nearly every pound in existence was created as a loan, whether that's your mortgage, a company's borrowing, or the government's debt. So the money itself is made of debts, and those debts are fixed in pounds. If prices broadly fall and nothing is done to stop it, wages eventually follow them down, but the mortgage payment doesn't shrink. The debt takes a bigger bite of everyone's income, yours, your employer's, the government's.

A money system made of debts fixed in pounds can take a slow fall that comes with better tools. In that fall it's the cost of making things that drops, and pay drifts down slowly behind it, so the money to meet a fixed payment is still there. What it can't take is [[why-the-system-needs-rising-prices|a sudden fall in the prices credit pushed up]], houses first, because then the losses spread through the banks. In that fall it's the lending that has stopped, so incomes and the house fall together and at once, and the fixed payment is hit from both sides in the same year. Houses come first because people buy them with borrowed money. And where the loan was written against a house, the house is worth less too, so the bank stands to lose more on that loan. So every time a sudden fall in those prices threatens, the system is rescued with new money, and the rescues keep getting bigger.

Between rescues, the government and central bank aim for prices to rise by about 2% a year, and they call that success. Getting there takes new money that first cancels the fall better tools would have delivered, and then adds two on top. Central banks publish why they aim there. They want room to cut interest rates in a downturn, they know wages resist falling, and they say the official measure of prices overstates the rise. Those are the reasons they give, and the debts aren't among them.

The new money, created for the rescues and for the 2%, doesn't land evenly. It usually enters through banks and financial markets, so the first people to receive it buy houses, shares, and bonds before prices have adjusted. Early receivers of new money benefit at the expense of late receivers. The name for this is [[who-gets-the-new-money-first|the Cantillon effect]]. House and share prices jump first. Your wages adjust last, after your rent and your weekly shop have already moved. Inflation and a wage that buys less are [[a-pay-cut-by-another-name|the same event seen from opposite sides]].

So when you ask where your saving went, it's findable. It's in the gap between what prices did and what they should have done. It's in the house that more than doubled in pounds in the twenty years to 2020, which is where a large part of the new money went. It's in coffee, which is vastly cheaper to grow, ship, and roast than it was decades ago, yet costs more at the till. And it's in government spending paid for with new money rather than by a tax anyone voted on. Only after you've seen those steps does the short word fit. Captured. The gains were captured by the design, and no cabal was needed to plan it. Any government that allowed a sudden fall in the prices credit pushed up would preside over losses spreading through the banks. And between rescues nearly every major central bank aims at 2% for reasons it publishes. So government after government, whatever its politics, creates the money. Incentives, not villains.

## Why zero is the wrong baseline

Measuring inflation from zero smuggles in the assumption that if prices didn't move, nobody lost anything. That would only be true if the natural drift of prices were flat. Under a money nobody can add to, it isn't. Technology pushes prices down every year, and the push keeps getting stronger, because the tools are improving faster than they did, as software and AI spread. So a year of "flat prices" isn't neutral. Before 2008, Britain's productivity grew near 2% a year. If that would have made your cost of living 2% cheaper and prices ended the year unchanged, the whole 2% was taken from what your money buys, and you'd never see it in any official number. At the 2% target, the take is 4%. The headline figure is only part of it. A large part of the transfer is the fall that was withheld, and no basket of goods can show you a price fall that was never allowed to happen. It's a theft with no crime scene. What was taken never arrived in your account.

It gets worse, because the 2% target turns the measure into the goal. The system is run to make the official number read 2%, so hitting the target only tells you the system is working as designed. And every "real terms" figure you've ever seen is worked out in the very unit that's being expanded. The ruler is elastic, and [[the-stretching-ruler|we're using the ruler to check the ruler]]. The official basket is adjusted for quality too. When a product gets better, the statisticians mark its price down, and the name for those changes is hedonic adjustments. Those adjustments are opaque, and the rules for them are a choice of method. The basket also underweights the things that dominate a household's life, housing above all.

The official number hides a split, and the split shows technology and new money pulling against each other. Televisions, computers, and software fell in price for decades. That's technology's push showing through, in the places where competition and technology moved faster than the new money. Meanwhile the things you can't opt out of and the things people use to store value, housing, education, healthcare, kept climbing. A large part of the reason is that they're [[houses-stopped-being-homes|where the new credit pools]]. Average a telly that got cheaper against a rent that rose and you manufacture a mild-looking 2% that describes almost nobody's actual life.

## The honest baseline

The honest baseline is productivity. Prices should fall roughly in line with our improving ability to make things, so the honest measure of inflation is the gap between measured prices and that falling line. True cost to you equals the official number plus the price falls that were withheld. So the question to ask each year becomes "how much cheaper should my life have got, and who received the difference?"

I'll be straight about precision, because I don't want to fake it. From inside the system, nobody can work out to a decimal what prices would have done, and that blindness is itself part of the indictment. But the direction is certain and the rough scale is visible. Output per hour of work is what the productivity figures measure. In Britain it grew near 2% a year before 2008. From 2009 to 2019 it grew between 0.7% and 1.3% a year, depending on which of the statisticians' two measures you take. So a 2% inflation year is plausibly a 3% to 4% transfer, give or take. The tools are improving faster than they did, and you won't see that in the official productivity figures yet. You can see the strength of technology's push indirectly, in how hard the system pulls against it. Between 2000 and early 2018 the world added roughly 185 trillion dollars of new debt to buy roughly 46 trillion of measured growth. [[four-pounds-of-debt-for-one-pound-of-growth|What it takes to hold back that push keeps growing]]. Nobody borrows four to get one because things are going well.

One clean way to check the ruler is to measure in a unit nobody can expand. That's what pricing the world in bitcoin is for. Set aside whether you ever buy any. Use it as the fixed ruler for a moment and the picture inverts. The same family home that more than doubled in pounds costs far fewer bitcoin than it did, not smoothly, but unmistakably across cycles. The house didn't change. The units did. The whole of that fall is bitcoin getting stronger as people move their savings into it. So the comparison shows you a price moving with its unit, and it can't show you the size of the fall technology should have delivered. You don't need the fixed ruler to accept the argument, though. The baseline stands on its own. Productivity, not zero.

## The usual replies

### "Official statistics already adjust for quality, so the gains are counted."

Quality adjustments are made inside the same unit that's being expanded, so they can't reveal what prices would have done under a unit nobody can expand. And much of what you now get for free, maps, photos, calls, music, barely registers in the figures at all. GDP is the official measure of how much the economy produces. [[gdp-is-blind|GDP counts paid transactions, not value]], so when something becomes free it looks like shrinkage.

### "If prices fell, people would stop spending and the economy would die."

You bought a phone knowing next year's would be better and cheaper. You'll buy a winter coat because you're cold now. People buy what's useful when they need it. What does get put off is the purchase that can wait, and sometimes that's a big one, like a car. What falls when people wait is the borrowing that would have paid for it, and life carries on. The fear, said plainly, is that you won't shop unless we take a slice of your savings each year.

### "But my TV did get cheaper, so the market clearly passes savings on."

Yes, where technology outran the new money, prices fell anyway. That shows technology's push is real. The question is why the same push so rarely makes it as far as your rent. New credit is a large part of the reason, because it's channelled straight into the assets the rescues protect. Another part is that building is one of the things better tools haven't made cheaper.

### "Wages rise with inflation, so it comes out in the wash."

Wages lag prices, and house and share prices outrun both. That ordering follows from where new money enters. Part of the saving does reach you as higher pay, late and unevenly. Against shop prices pay can catch up, late. Against house prices it hasn't. Over a year the wash looks small. Over a generation it's the difference between your parents buying a house on one salary and you renting on two.

Once the baseline moves, "price stability" stops being a neutral phrase. Stable prices in a world of improving technology mean the whole of the fall that technology would have delivered is being cancelled, and the saving is being collected before it can reach you as a lower price. And the paradox you live inside resolves. Almost everything is more efficient than it's ever been, and yet most people feel poorer. Both are true. The efficiency is real, and so is the collection.

## Sources

What this essay rests on, as checked on 2026-09-28.

1. "The official inflation number measures how much prices rose."
   Office for National Statistics, Consumer Price Inflation (includes all 3 indices – CPIH, CPI and RPI) QMI: "The CPIH, CPI and RPI all measure the average change from month to month in the prices of consumer goods and services purchased in the UK." https://www.ons.gov.uk/economy/inflationandpriceindices/methodologies/consumerpriceinflationincludesall3indicescpihcpiandrpiqmi

2. "Our money system is built to push prices up, so the government and central bank create new money and credit year after year, and the new money cancels the price falls you should have received."
   Bank of England, Quarterly Bulletin 2014 Q1, “Money creation in the modern economy”, 14 March 2014: "the majority of money in the modern economy is created by commercial banks making loans" and "The central bank can also affect the amount of money directly through purchasing assets or 'quantitative easing'." https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
   Federal Reserve, FOMC Statement on Longer-Run Goals and Monetary Policy Strategy, 25 January 2012: "The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate." https://www.federalreserve.gov/newsevents/pressreleases/monetary20120125c.htm
   European Central Bank, An overview of the ECB's monetary policy strategy, 2021: "at this juncture the Governing Council considers that price stability is best maintained by aiming for a two per cent inflation target over the medium term." https://www.ecb.europa.eu/mopo/strategy/strategy-review/ecb.strategyreview_monpol_strategy_overview.en.html

3. "Part of the saving reaches you as higher pay, late and unevenly."
   Pessoa and Van Reenen, Centre for Economic Performance Discussion Paper 1246, “Decoupling of Wage Growth and Productivity Growth? Myth and Reality”, October 2013: "In the UK net decoupling is basically zero: both wages and productivity rose by the same amount since 1972." UK, 1972 to 2010: "real productivity grew by 114 per cent" and "median real wages by 72 per cent". https://cep.lse.ac.uk/pubs/download/dp1246.pdf
   Feldstein, NBER Working Paper 13953, 2008: Productivity doubled and compensation per hour rose "at approximately the same annual rate" with a consistent deflator; United States, 1970 to 2006. https://www.nber.org/papers/w13953

4. "Wages are sticky, so at first the rate you're paid per hour holds while your weekly shop gets cheaper, and your savings buy more year after year without you having to chase returns to get it."
   Federal Reserve Bank of San Francisco, Wage Rigidity Meter, fourth quarter 2019: "annual wage changes of U.S. workers that have not changed jobs over the year" from "a matched Current Population Survey dataset"; wage rigidity 13.44% in the fourth quarter of 2019, with the histogram concentrated at zero. https://fraser.stlouisfed.org/title/wage-rigidity-meter-6771/fourth-quarter-2019-622141/fulltext

5. "Nearly every pound in existence was created as a loan, whether that's your mortgage, a company's borrowing, or the government's debt."
   Bank of England, Quarterly Bulletin 2014 Q1, “Money creation in the modern economy”, 14 March 2014: "the majority of money in the modern economy is created by commercial banks making loans". The Bank says the majority of money, not nearly every pound. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

6. "Between rescues, the government and central bank aim for prices to rise by about 2% a year, and they call that success."
   Bank of England, Inflation and the 2% target: "The Government sets us a 2% inflation target"; "The Government has set us a target of keeping inflation at 2%". https://www.bankofengland.co.uk/monetary-policy/inflation
   HM Treasury, Remit for the Monetary Policy Committee and the new inflation target, December 2003: "Announced in June 2003 and implemented on 10th December 2003, the Bank of England's inflation target was redefined from 2.5 percent measured by RPIX inflation to 2 percent measured by annual CPI inflation." https://www.bankofengland.co.uk/letter/2003/chancellor-letter-101203

7. "Central banks publish why they aim there."
   European Central Bank, An overview of the ECB's monetary policy strategy, 2021: "Three additional factors, which were present already in 2003 and which have remained broadly unchanged since then, call for a sufficient inflation buffer." https://www.ecb.europa.eu/mopo/strategy/strategy-review/ecb.strategyreview_monpol_strategy_overview.en.html
   Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy, as amended effective 27 August 2020: "the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past"; "as amended effective August 27, 2020". https://www.federalreserve.gov/monetarypolicy/monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy-2019-2020.htm

8. "They want room to cut interest rates in a downturn, they know wages resist falling, and they say the official measure of prices overstates the rise."
   European Central Bank, An overview of the ECB's monetary policy strategy, 2021: "Three additional factors … call for a sufficient inflation buffer"; "taking account of downward nominal wage rigidities". The three are the effective lower bound, wage rigidity and "measurement bias in the HICP". https://www.ecb.europa.eu/mopo/strategy/strategy-review/ecb.strategyreview_monpol_strategy_overview.en.html
   Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy, as amended effective 27 August 2020: "the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past". https://www.federalreserve.gov/monetarypolicy/monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy-2019-2020.htm

9. "It usually enters through banks and financial markets, so the first people to receive it buy houses, shares, and bonds before prices have adjusted."
   Bank of England, Explainer, “Quantitative easing”: “Instead, like other central banks, we can create money digitally in the form of ‘central bank reserves’. We use these reserves to buy bonds.” https://www.bankofengland.co.uk/monetary-policy/quantitative-easing

10. "It's in coffee, which is vastly cheaper to grow, ship, and roast than it was decades ago, yet costs more at the till."
   Office for National Statistics, RPI average price series, “Coffee: pure, instant, per 100g” (CDID CZNP, dataset MM23): “RPI: Ave price - Coffee: pure, instant, per 100g”, unit pence: 1967, 24; January 2025, 385. https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/cznp/mm23

11. "Before 2008, Britain's productivity grew near 2% a year."
   ONS, Component approach to measuring labour productivity, UK: 1997 to 2024, 17 September 2026: “Output per hour growth averaged 2.1% a year under the current approach and 2.0% a year under the component approach between 1997 and 2007”. https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/methodologies/componentapproachtomeasuringlabourproductivityuk1997to2024

12. "It gets worse, because the 2% target turns the measure into the goal."
   Federal Reserve, FAQ, "Why does the Federal Reserve aim for inflation of 2 percent over the longer run?", page last updated 22 August 2025: "the Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve's mandate" https://www.federalreserve.gov/faqs/economy_14400.htm

13. "The official basket is adjusted for quality too."
   U.S. Bureau of Labor Statistics, Quality Adjustment in the CPI: "The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item." https://www.bls.gov/cpi/quality-adjustment/

14. "When a product gets better, the statisticians mark its price down, and the name for those changes is hedonic adjustments."
   BLS, Quality Adjustment in the CPI: "The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item." https://www.bls.gov/cpi/quality-adjustment/

15. "The basket also underweights the things that dominate a household's life, housing above all."
   UK Statistics Authority, UK Consumer Price Statistics: A Review (the Johnson review), published 8 January 2015: "other than not accounting for owner occupiers' housing costs, the Consumer Prices Index (CPI) is a well constructed measure of inflation". The review names only owner occupiers' housing costs and otherwise calls the index well constructed, with nothing on other items being underweighted. https://uksa.statisticsauthority.gov.uk/reports-and-correspondence/reviews/uk-consumer-price-statistics-a-review/

16. "Televisions, computers, and software fell in price for decades."
   BLS, Consumer Price Index item indices for televisions, computers and software, 1997 to 2024: To August 2015: TVs -94%, computers -96%, software -63%. Software index 32.4 to 23.7 (December 1997=100); computers 43.4 to 33.7 (December 2016 to December 2025, December 2007=100); all items up 95.6% from December 1997. https://data.bls.gov/timeseries/CUUR0000SEEE01?output_view=data

17. "Average a telly that got cheaper against a rent that rose and you manufacture a mild-looking 2% that describes almost nobody's actual life."
   Office for National Statistics, CPI ANNUAL RATE 00: ALL ITEMS 2015=100 (series D7G7): UK CPI annual rate: 2000: 0.8%; 2001: 1.2%; 2020: 0.9%; 2021: 2.6%; 2022: 9.1%; 2023: 7.3%. The yearly rates for 2000 to 2019 average 2.05%, and US CPI-U averages about 2.2% over the same years. https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23

18. "Output per hour of work is what the productivity figures measure."
   U.S. Bureau of Labor Statistics, Productivity and Costs, Second Quarter 2026, Revised, 3 September 2026: "Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers." https://www.bls.gov/news.release/prod2.nr0.htm

19. "In Britain it grew near 2% a year before 2008."
   Office for National Statistics, Component approach to measuring labour productivity, UK: 1997 to 2024, page dated 17 September 2026: "Output per hour growth averaged 2.1% a year under the current approach and 2.0% a year under the component approach between 1997 and 2007." https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/methodologies/componentapproachtomeasuringlabourproductivityuk1997to2024

20. "From 2009 to 2019 it grew between 0.7% and 1.3% a year, depending on which of the statisticians' two measures you take."
   Office for National Statistics, Component approach to measuring labour productivity, UK: 1997 to 2024, page dated 17 September 2026: "between 2009 and 2019, growth slowed to 0.7% a year under the current approach but 1.3% a year under the component approach" https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/methodologies/componentapproachtomeasuringlabourproductivityuk1997to2024

21. "And much of what you now get for free, maps, photos, calls, music, barely registers in the figures at all."
   Brynjolfsson, Collis and Eggers, Paper in the Proceedings of the National Academy of Sciences, volume 116, number 15, 2019: Digital goods generate consumer welfare "not captured in GDP". https://www.pnas.org/doi/10.1073/pnas.1815663116

22. "Against house prices it hasn't."
   Office for National Statistics, Housing affordability in England and Wales: 2023: "affordability ratios doubled in England from the start of the series in 1997 to 2007, stayed at a similar level until around 2013, and then broadly increased until 2023, with a spike in 2021"; ratio 8.3 in England in 2023. https://www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/2023
   David Miles and Victoria Monro, Bank of England, Staff Working Paper No. 837, 20 December 2019, "UK house prices and three decades of decline in the risk-free real interest rate": "the rise in house prices relative to incomes between 1985 and 2018 can be more than accounted for by the substantial decline in the real risk-free interest rate observed over the period". https://www.bankofengland.co.uk/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate

23. "Almost everything is more efficient than it's ever been, and yet most people feel poorer."
   Gallup, Gallup poll, 16 to 28 September 2024, "Majority of Americans Feel Worse Off Than Four Years Ago": "More than half of Americans (52%) say they and their family are worse off today than they were four years ago". One country, one four-year window, not most people generally. https://news.gallup.com/poll/652250/majority-americans-feel-worse-off-four-years-ago.aspx