soldier's wage as price peg

[stone]

It is often a contentious issue as to what is the "real" level of inflation and whether currency value should be convertible to gold etc. I was wondering whether a trusted and realistic bench mark for comparison would be the wage for the lowest ranked fighting soldier. People would trust that soldiers were being paid an appropriate amount and that the powers that be would not be able to manipulate that as a price level. So a USD could be say 1/1400th of  the soldier's monthly wage. Would that make genuine inflation or deflation impossible? Any price changes to oil or computors etc would just be due to changes in scarcity/efficiency?

[MediumTex]

Soldiers receive different types of pay.  You have housing allowance issues under different circumstances, and then there is the health care that doesn't necessarily show up in the pay numbers.  In some situations the soldiers are fed for free, which also may not show up in their paycheck figure.

If you added all of the benefits together with the base pay, they are probably paid reasonably well.

[WildAboutHarry]

People would trust that soldiers were being paid an appropriate amount and that the powers that be would not be able to manipulate that as a price level.

I was a lowly E-1 in the Navy in 1970.  I recall getting a big pay bump in the early 1970s.  Looking back at old military pay charts (thank you Google), an E-1 in January 1971 was paid $134 per month.  It was bumped to $288 in January 1972.  There was high inflation then, but not that high  

So no, I would not think that military pay is necessarily an accurate reflection of inflation.  Too much politics.

[stone]

But what if a certain fraction of the total pay and benefits for a starting lowest ranking soldier was the DEFINITION of what a USD was? So if for political reasons the government wanted to shift up soldiers' pay relative to say senators' pay or anything else that they set the price for, then they would have to reduce what they paid for the other things but always keep the soldiers pay exactly the same?

[WildAboutHarry]

So the assumption would be that military pay would be relatively "fair" compared to other public-sector salaries and that fairness would have to be maintained?

What we really need is a standard that is non-fiddleable.  Like the meter.  So many wavelengths of a certain kind of light under certain specific conditions.

Or maybe just a gold standard.

[MediumTex]

I would think that the average wages of a trade like auto mechanic or something like that would be a better proxy for inflation than a soldier's pay.

[stone]

Medium Tex, I guess I have made a communication failure- sorry and please bear with me . I wasn't trying to think of an inflation index but rather what would be a sensible price anchor in order to have price stability. As many people have said, a gold/silver standard tends to only work whilst massive gold/silver mining is successfully taking place, otherwise it just hits the buffers and gets abandoned. In Babylonian times they pegged together the shekel currency, silver and barley by law. The  link to barley was crucial for the functioning of the system because it meant that hoarding of silver did not create a deflation spiral. In this day and age though, even agricultural commodities can and do get hoarded by financiers (eg as in the 2008 financial crisis and resulting famine). I was trying to come up with an alternative "better than gold" price anchor. If the USD was redefined as 1/1400th of a starting low rank soldier's pay then perhaps that could be such a credible price anchor. It could be extended such that there was a fixed ratio between that pay and the pay of a five star general (perhaps 5x as much?) and the president and any federal employee they decided to peg (perhaps all).

The crucial difference between federal employees and say private sector car mechanics is that the government has total power over how much to pay their own employees and also it is the government that creates the USD (in "net financial assets sense"). If the peg were made to private sector car mechanics then disaster would ensue because the private sector car mechanics would constantly be changing their pay so as to keep ahead of the government in a cat and mouse spiral. The government its self pays the federal employees so no such event can occur.

The reason to choose military pay (rather than the president's pay or whatever). Is because military pay is such a large amount that it can not be messed around with and also, as WildAboutHarry said, the military are not going to be messed around with.  Everyone relies on them being on our side. That would give international credibility to the idea that the government would not devalue the USD and just let the military suffer. That would make the USD a very strong, trusted and sort after reserve currency even in a (near) zero interest rate environment as I guess we are heading towards.

[WildAboutHarry]

As many people have said, a gold/silver standard tends to only work whilst massive gold/silver mining is successfully taking place

That is certainly a problem with physical pegs, since the supply of the backing commodity is variable.  Aluminum used to be a "precious" metal until refining techniques made it readily available.  My understanding is that Spain suffered tremendous inflation with the influx of gold and silver from the new world (can't verify, Wikipedia is in blackout mode :-[must write congress).

I am not sure of the need for a peg.  The price of everything (including dollars) fluctuates in relation to the price of everything else.  That is one of the reasons for the HBPP selection of asset classes.

[stone]

I think having a currency that gives as much price stability as possible is crucial for a functioning economy. You just need to see the loss of production, poverty and chaos that comes from severe inflation or deflation to see that. Money is working best when people don't need to think at all about possible inflation or deflation (of assets or consumables). If what makes business sense in terms of producing what people really want and need is also what makes financial sense then the monetary system is doing its job IMO. The colossal waste of the FIRE sector we have now is an artifact of our deranged monetary system IMO.