Just roll back all prices and wages? How would you enforce that?
There is no government office that sets prices and wages. Instead prices are set by the market. The reason a loaf of bread costs $1.00 in 1975 and $2.00 in 2013 is that the supply of money has grown faster than the supply of goods and services.
Money is just one type of good, and when the supply of money increases or the demand decreases the value of money decreases. When the supply of money decreases of the demand increases then the value of money increases.
There have been periods of time where the value of money has steadily increased, leading to falling prices across the board. This is known as “deflation”, the opposite of inflation. Deflation causes economic problems just as certainly as inflation. But even so, a modest 1-2% inflation rate is nothing to worry about, even though it will cause the value of a unit of money to halve in 70 years. This makes comparing prices over decades tricky.
And yes, countries do remonetize. But they don’t decree that all prices and wages are halved, or cut by 9/10ths, or whatever. Instead they issue new money, and demonetize the old money, and people set and accept whatever prices seem realistic based on the supply and demand for the new money.
We could issue new dollars worth 100 old dollars, and declare that for a month the banks will accept exchange of old money for new money and at the end the old dollar will be worthless. Except what do we gain from this? Candy bars now cost a (new) penny? What is gained by saying that the old dollar is worth a new penny?
Countries that have undergone long rounds of inflation do this to knock some decimal points off their currency. In Italy 1000 lira was worth about a dollar. But they solved their problem not with issuing a new lira but by adopting the Euro. But again, nobody went around demanding that all prices be denominated in some fraction of the old price, they issued new currency and let market values determine prices.
If we really wanted to cut prices and wages by 30% we simply decrease the money supply and get a decade or so of deflation. But deflation is bad because it punishes borrowing–people borrow a dollar today, and have to pay back a dollar next year, except next year’s dollar is worth more.
The opposite problem is inflation, where people borrow a dollar today and pay back a dollar next year, except next year the dollar is worth a lot less. But that is handled by charging high interest rates, the problem is misjudging the inflation rate and accidentally charging way to much or way to little.
This is why a stable currency is valuable, it allows borrowing and lending to occur in a more orderly fashion. And 1-2% inflation counts as “stable”, some currencies have inflated 100% in a year, or a month. After a while and the currency ceases to work as money because it can’t be used as a medium of exchange, a store of value, or a unit of account. People switch to barter, or key goods (like cigarettes in prison), or foreign currencies.
The key concept is that money is just a special type of good that follows the laws of supply and demand just like other goods. The number you paid for your house is meaningless, what matters is how that number compares to other numbers.
