Purchasing power (sometimes retroactively called
adjusted for inflation) is the number of goods or services that can be purchased with a unit of
currency. For example, if one had taken one unit of currency to a store in the 1950s, it is probable that it would have been possible to buy a greater number of items than would today, indicating that one would have had a greater purchasing power in the 1950s.
Currency can be either a
commodity money, like
gold or
silver, or
fiat money emitted by government sanctioned
agencies. Most modern fiat currencies like
US dollars are traded against each other and commodity money in the
secondary market for the purpose of international
transfer of payment for goods and services. As
Adam Smith noted, having money gives one the ability to "command" others'
labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for
money or
currency.