Magazine article Economic Trends

The Economy in Perspective

Magazine article Economic Trends

The Economy in Perspective

Article excerpt

"Money talks" because money is a metaphor, a transfer, and a bridge. Like words and language, money is a storehouse of communally achieved work, skill and experience.

--Marshall McLuhan, Understanding Media, ch. 14 (1964)

Inflation--the rate at which the purchasing power of money declines--is a big deal. In his 1931 Essays in Persuasion, John Maynard Keynes wrote, "The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens." History is filled with examples of governments, elected or not, that cheapened their currency to the detriment of their own citizens.

The United States last experienced a serious bout. of inflation in the 1970s: The buying power of a 1970 dollar was reduced to about 47 cents by 1980. And inflation was not only high but also variable. People found it difficult to plan from one year to the next, and those who saved demanded protection in the form of higher interest rates to compensate them for inflation. Nevertheless, Americans tolerated accelerating inflation for a while. They had been told that inflation in itself was not very harmful to economic growth and that lower inflation would require significantly higher unemployment. But inflation was taking a toll on the economy. Investment suffered and productivity declined. Working people felt that their wages were not keeping up with the prices of the things they bought; retirees feared that they would outlast their savings.

The public eventually demanded an end to the Great Inflation, as it has since been clubbed, and ever since the 1980s has supported Federal Reserve policies designed to bring inflation down and keep it down. People seem to accept the proposition that inflation does not buy more economic growth--on the contrary; they understand that chronic inflation actually harms economic growth and their own welfare.

Returning to the very low inflation rates that prevailed in the 1960s has taken quite a while and has been a gradual process. The purchasing power of a 1980 dollar declined to 63 cents by 1990--a much better performance than the drop to 47 cents in the previous decade, but still a long way from representing a stable currency. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.