Ok, I've been reading a lot of macro lately, and there is a basic question I don't understand.

1) Prices are signals.

2) Inflation is bad because it steals value and distorts signals.

3) mv = pq

I buy #1 and #2 and I mostly buy #3. But...

I see Milton Friedman reported (perhaps erroneously) as having the opinion:

4) By #1 and #3, the money supply should expand at the same rate as the GNP in order to keep nominal prices stable.

Except that the reason to keep nominal prices stable is because of #1 (at least, I can't see any other good reason). And isn't the fact that the GNP is increasing a reflection of the fact that the economy is getting more efficient, and things are getting cheaper to make? So shouldn't prices be going down? Isn't having nominal prices decrease an accurate reflection of the fact that real prices are decreasing? Doesn't #4 still have both the problems of inflation (stealing value, distorting signals), although to a lesser degree than if the money supply expands faster than the GNP?

If giving good signals is the goal of price stability, then in an economy where the real cost of goods and services is constantly changing (which is pretty much all of them nowadays), isn't price stability inherently contradictory?

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