An Analysis and History of Inflation

An Analysis and History of Inflation

An Analysis and History of Inflation

An Analysis and History of Inflation


This history and analysis examines fifteen great inflations--from Ancient Rome to the French Revolution to post-World War I Germany to modern-day Brazil--to provide an understanding of the causes of inflation. A unique feature of the book is the evidence presented that a moderate degree of inflation is usually accompanied by increased economic activity. Contrary to the views of many, moderate inflation appears to be welcomed by most people and assists in returning incumbent political leaders to power. In addition, the money illusion, the belief that money has constant value over time, is shown by the author to be grievously in error.


Inflation, defined as a general increase in prices, is the world's greatest robber. A covert thief, inflation steals from widows, orphans, bondholders, retirees, annuitants, beneficiaries of life insurance, and those on fixed salaries, decreasing the value of their incomes. Inflation extorts more wealth from the public than do all other thieves, looters, embezzlers, and plunderers combined.

Inflation, a Jekyll and Hyde character, is not only a great robber but also a great benefactor. Inflation is the world's greatest giver, doling out benefits to debtors, hoarders of goods, owners of property, government (for which it reduces the burden of the public debt), and, over time, owners of common stocks. The largesse thus bestowed on the debtor class and owners of property exceeds the combined total of all charities, contributions, and donations.

The reason for this inequitable behavior is that administered prices (such as returns from bonds) respond very slowly to inflation, while competitive market prices, largely determining the cost of living, surge upward. If all sectors of the economy responded to inflation in like fashion it would make little difference whether the price level was high or low, rising or falling.

A rough estimate may be made of the magnitude of inflation's arbitrary redistribution of income. In 1988 the total indebtedness--public and private, mortgaged debt and consumer credit--was approximately $6,471 billion. Inflation during the last half-century has been running at about 4 percent per year, reducing the 1988 incomes of the country's lenders by . . .

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