Deflation

“ Labor should not resist deflation, nor expect to preserve the rates of wages that were established in terms of inflated dollars. The great primary classes of labor are those who live in towns and work mainly in them; and those who live on farms and cultivate them. If deflation reduces the national income in terms of dollars and if town labor maintains previous income in terms of dollars; i.e., if it maintains its previous rates of wages and working time, by virtue of concerted action or otherwise, it is getting an undue share of the national produce at the expense of the farmers. ”

“ Overproduction, underproduction and speculation are three evil sisters who distill the troubles of unsound inflation and disastrous deflation. It is to the interest of the Nation to have Government help private enterprise to gain sound general price levels and to protect those levels from wide perilous fluctuations. ”

“ In a few, of which Italy is one, an imprudent desire to deflate has been balanced by the intractability of the financial situation, with the happy result of comparatively stable prices.
Each process, Inflation and Deflation alike, has inflicted great injuries. Each has an effect in altering the distribution of wealth between different classes, Inflation in this respect being the worse of the two. Each has also an effect in overstimulating or retarding the production of wealth, though here Deflation is the more injurious. ”

“ The Inflation which causes the former means Injustice to individuals and to classes,—particularly to investors; and is therefore unfavourable to saving. The Deflation which causes falling prices means Impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment. The counterparts are, of course, also true,—namely that Deflation means Injustice to borrowers, and that Inflation leads to the over-stimulation of industrial activity. ”

“ This we have done by stimulating increased production and by temporarily encouraging imports which tend to absorb excess purchasing power as fast as possible. While it is necessary that inflation should be controlled, the deflationary process should not be allowed to proceed too rapidly In the same way that we effectively checked inflation, we must do our best to control the speed of deflation. Failure to do so would disrupt our national economy, set back the progress of reconstruction and development, and bring suffering to our people. ”

“ Is the cost of living gradually declining, there- by increasing the purchasing power of wages?
Inflation is a post-war plague depressing the economy of nations and the lives of hundreds of millions of people in the world. Inflation remains unchecked and is in fact growing worse every day in many foreign countries. In our country we are fortunate that we have succeeded not only in arresting inflation but in starting the deflationary trend. ”

“ An economic cycle invariably starts with inflation. The previous cycle having ended – and the new one just began – the economic environment is as uncertain as can be. The fundamental component is the scarcity of goods and services (following recession or deflation) and the maladapted money supply. Too much money chases fewer commodities. The general price level rises. But this constant, ubiquitous, all pervasive rise (known as "inflation") is also the result of mass psychology. Households and firms compensate for the growing uncertainty (=growing risk) by raising prices. ”

“ First, I have shown that an inflation of currency will stimulate general speculation, and that this speculation will so divert the currency from legitimate business that the latter, after the expansion, will not only not have a greater but a less proportion of it for its purposes than before; and secondly, inflation will still more depress the agricultural interest, which is the principal source of prosperity in the South as well as the West, than it is depressed now. ”

“ An inflation of our paper money is demanded of us in any form, the form of greenbacks, the form of national-bank currency or both combined, but an inflation in any event upon one single ground—that there is at present an insufficient supply of currency in this land to fill the legitimate requirements of the business of the country. ”

“ Where this additional currency was procured by further inflation—that is, by printing more paper money or creating fresh credit—there arose what has been called a vicious spiral of constantly rising prices and wages and constantly increasing inflation, with the resulting disorganization of all business, dislocation of the exchanges, a progressive increase in the cost of living, and consequent labor unrest.
It is of the utmost importance that the growth of inflation should be stopped ”

“ Western economies suffer since the early 1970s from mass unemployment and the threat of inflation. This bad mix of bad ingredients is called “stagflation” for short. “Stagflation” in fact is a concatenation of “stagnation” and “inflation”. The word was coined around 1970 when national income growth stagnated and brought along unemployment. Since then growth has somewhat recovered, and stagflation has been redefined and now is properly understood as a bad ‘trade-off’ of both inflation and unemployment. ”

“ For, hereafter, they must know in advance, even in periods of extraordinary governmental extravagance just what are to be governmental exactions; in times of exaggerated uncertainty they must measure even beyond any reasonable doubt the fluctuations and future inflation of the currency, the future result of future years,—how much and when inflated prices will collapse, to what degree "replacement" must and will take place, the varying efficiency of labor, all changes in costs, in interest, in freight rates, and every other item involved in doing business ”

“ It is unfortunate for the consumer because it makes prices uneven, and it inflicts cruel injury upon laborers and operatives, and through them upon the whole community.
Here, then, is the evil. Speculation inflames it; currency inflation stimulates it; but undiffused, unregulated, and unrestrained production throws the whole complex machinery of trade out of order; it stirs the whole energies of the people into producing at one period, and arrests energies at another; in suddenly stopping production, it reduces consumption, and hence renders recovery the very labor indeed of Sisyphus. ”

“ No; if the farmer or planter wants to prosper he will, above all things, use every effort within his power to rid the country of a system of currency which obliges him to sell at low and to buy at high prices. He may for a moment think that inflation will aid him in paying off his debts, if he has any; but upon consideration he will discover that debts are paid out of surplus earnings, and that his earnings will be depressed when the price of what he buys is high in proportion to the price of what he sells ”

“ So long, therefore, as the currency is increased by the issue of national-bank notes, and not of greenbacks, there can be no depreciation, and consequently, no inflation—for inflation, as the term is used nowadays, signifies an increase in the volume of the currency that causes depreciation, or, as its friends put it, “makes money cheaper.” ”

“ Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency. ”

“ There are twelve hundred millions, then—twelve hundred millions of debt—owing to the laboring men and the men of small means. And now, I ask you who are advocating the inflation of the currency, what are you doing to those poor people; what are you doing with their twelve hundred millions of money? Inflate the currency, and by inflation depreciate it, and you will diminish the value of these twelve hundred millions 10, 20, 30 per cent. ”

“ Falling prices discourage enterprise, although, if all facts were known to the bottom, it might be found that capital was being accumulated in successive periods of production.
It is also true that a depreciation of the money of account, while it is going on, stimulates exports and restrains imports.
But who can tell how we are to make prices always go up, unless by constant and unlimited inflation? Who can tell how we are to avoid fluctuations in prices or eliminate the element of contingency, risk, foresight, and speculation? ”

“ All the evils of inflation will inevitably follow; that is to say, violent fluctuations of values, over-speculation and gambling on a larger scale than ever, until a new crash comes, which new crash will be the more disastrous the greater the inflation has been. ”

“ Our inflation friends may not relish that kind of reasoning; but what have you to answer? Those who know me will bear me witness that I have never hesitated to criticise those in power for things I thought wrong; but I candidly think to charge those in power with having brought on the crisis of 1873 by a contraction of the currency would be just as reasonable as to make them responsible for the equinoctial storms, or for the depredations of the locusts in the West. ”

“ The character of our paper currency, in consequence of its inflation, blows up the prices of everything the farmer has to buy, and the same thing runs down the prices of all he has to sell. When he buys a thing the risk of currency inflation is against him, for it is deducted from the price he gets. Even under favorable circumstances, the farmer does not make much over and above his expenses. ”

“ If it were true, as the inflationists insist, that the increase or decrease of the currency were at the bottom of our prosperity and depression respectively, we would have to answer that, according to the clearly ascertained facts of history, it was contraction that caused prosperity, and expansion that caused the collapse. ”

“ Clipped shillings, French assignats, and Continental and Confederate currency, were no more fiat money than are American double eagles or five-pound Bank of England notes. It is the stamp of the government, the fiat of its power, that turns the metal or the paper into money.”
“But do not all financiers consider inflation a disaster, Mr. Morning?”
“Inflation,” replied the gentleman, “whether of metallic or paper currency that is accepted by the world or by a great commercial nation as a legal tender, can do no harm except to those who loan money. A dollar is a mere term. ”

“ Either an Upheaval or a Collapse of Prices Weakens Confidence in Money and arouses public curiosity as to the "reason why." Great wars usually cause great price upheavals through inflation and so lead to discussion as to causes and cures. ”

“ But that gold inflation in this country is one explanation of the general advance in prices of all commodities, although undoubtedly it is not the only explanation; for it must be freely admitted that prices have been affected, first, by scarcity, occasioned by increased demand from Europe for many articles produced by us; second, by reason of the fact that increases in taxes and wages of labor have entered into the cost of production and sale of all articles and account for a share of the increased prices of commodities. ”

“ An inflation of our paper money, producing an inflation of prices, would inevitably injure the interests of the laborer for wages more than those of any other class of society; for, in the very nature of things, and as universal experience shows, it would increase the cost of living far more than the rate of wages. ”

“ In the undeveloped sections of our country, where capital is scarce and banking facilities undeveloped and where most of the people are debtors, there has always been a demand for cheap and abundant money. Capital and money have been confused and the need of one has led to a demand for the other.
It is not a matter of indifference, however, whether prices be rising or falling, that is, whether inflation or contraction of the currency is taking place. A period of falling prices means hardship and injustice to debtors and producers of goods, as farmers, manufacturers, etc. ”

“ Just a few years ago, double-digit inflation was bleeding our purchasing power. Record price increases, interest rates, and taxation punished the thrifty, impoverished the needy, and discouraged entrepreneurs. When an economy goes haywire, confidence is destroyed. ”

“ The grass was coming, so why gather together the dollars to meet the interest on the mortgage? The grass was coming—what was the use of depositing money in the bank which would probably go bust tomorrow?
The inflation would have been worse had it not been for the pegged prices and other stern measures. The glut on the labor market was tremendous and wages reached the vanishing point in a currency which would buy little. Suddenly, the United States, which had so long boasted of being the richest country in the world, found itself desperately poor. ”

“ At the same time I can not refrain from expressing the conviction that, as between inflation and contraction, no careful student of history and of economic science can for a moment hesitate in deciding that the evils inflicted on society by contraction have been longer in duration and infinitely greater in degree than any that have ever resulted from inflation. ”