Inflation

“ From the nightmare of interest rates that, at 21 1/2 percent, had pierced the highest level since the Civil War, double-digit inflation raging like an uncontrollable virus, long gas lines, and the worst tax burden in peacetime history, we awoke to a new dawn of progress-swift, sure, and steady progress that has continued for 4 years and is continuing today. Inflation, which has been as high as 13 percent, has not just eased but has sharply declined to less than 4 percent. ”

“ 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. ”

“ Well, this time inflation is staying down, and we mean to keep it down. In the last 12 months, the Producer Price Index for finished goods—one indicator of future inflation—has risen less than 3 percent. If inflation stays down, interest rates will come down, too, and our economy will keep expanding. ”

“ Just yesterday we learned that the Producer Price Index rose only four-tenths of 1 percent in February, a smaller rise than in January, and a solid sign that inflation remains in check. We're determined to keep the nightmare of runaway inflation from ever coming back. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ So, too, the inflation index showed only a two-tenths of 1-percent rise, which if worked out to an annual rate would be only a 2.4-percent inflation rate. What this shows is that our predictions about the direction of the economy this year have been right on: strong growth with a slight rise followed by an encouraging drop in inflation. ”

“ The maintenance of high levels of prices and wages in the United States is popularly ascribed to inflation. We have fallen into the habit of talking about inflation and deflation, owing to their being convenient expressions meaning the raising or lowering of price levels, but in fact the majority of economists bold that there is no such thing as monetary inflation in the United States at the present time. ”

“ Inflation will increase the want, for it will run up the premium on gold, and have the effect of raising general prices, rendering thereby a greater volume of currency necessary to effect the same exchanges. Inflation will not in proportion increase the supply, for it will drive a larger proportion of the currency into the channels of speculation and divert it from the channels of legitimate business. One hundred millions will not help you, and if you put out two hundred millions it will help you still less, for the appetite will not be satisfied ”

“ Last week I called attention to the decline in interest rates—21 1/2 percent down to 13 1/2 percent; inflation down from 12.4 percent to 5.4 percent since the first of the year. A family of four with a $15,000 income has $1,000 more in purchasing power than it would have if inflation had stayed at 12.4 percent. ”

“ 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? ”

“ 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.” ”

“ To benefit you, wages must, therefore, rise at a higher rate than the prices of other things. But has anybody ever told you that wages in any country, at any time, under the influence of currency inflation, have risen quicker and higher in proportion than general prices? If any man ever told you that set him down as a man too ignorant to be listened to or too unscrupulous to be trusted. ”

“ 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. ”

“ As Dr. A. C. Miller of the Federal Reserve Board has said, "Inflation is no less inflation when gilded with gold."
10. Extent of War Inflation
On the whole, the money in circulation in the United States rose from three and one third billions in 1913 to five and a half billions in 1918, and bank deposits from thirteen to twenty-five billions, both approximately corresponding to the rise in prices. ”

“ Inflation can only be when the people are excessively in debt. Such is not the position when money is plentiful; for when money is plentiful people get out of debt and acquire habits of promptness, punctuality, and pay as they go. ”

“ 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. ”

“ Now began to be seen more plainly some of the many ways in which an inflation policy robs the working class. As these knots of plotting schemers at the city centers were becoming bloated with sudden wealth, the producing classes of the country, though having in their possession more and more currency, grew lean. In the schemes and speculations put forth by stock-jobbers and stimulated by the printing of more currency, multitudes of small fortunes were absorbed and lost while a few swollen fortunes were rapidly aggregated in the larger cities. ”

“ But it means not only inflation by a single act and to a fixed amount—it means inflation continuous and indefinite.
The volume of the currency is to be “made and kept equal to the wants of trade.” Is not the volume of the currency equal to the wants of trade now? It is a fact as notorious as daylight that the banks of the country, especially in the centers of trade, are full of money that lies idle for want of employment. No intelligent man questions this fact. ”

“ The last recession before this one came in 1980. And by the time our administration took office, unemployment had almost reached 8 million, the prime rate had reached 21 1/2 percent—the highest in more than a century—and inflation was at 12.4 percent. According to the polls, inflation was the number one problem in everyone's mind. All of us associated it with the high interest rates and rightly so. A lender must charge an interest rate high enough to cover inflation as well as give a return on his or her money. ”

“ In more technical terms, inflation is a market pathology, a market failure.
Inflation disguises bad economic performance of firms and of the economy as a whole. "Paper" profits make up for operational losses. The incentives to innovate, modernize, and enhance productivity suffer. ”

“ Assuming that by Governmental edict, and the general forgetfulness that inflation always creates illusory estimates of value, it happens that a man having an orchard, or a farm, or mill, or invested capital of any kind, suddenly is led to believe that it has increased, through misleading inflation, perhaps, to three hundred per cent. ”

“ 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. ”

“ War finance has given us inflation of various kinds—paper money inflation and bank-credit inflation among belligerents and gold inflation among neutrals—with the result that everywhere prices have risen, i.e. the purchasing power of money has fallen, even where there has been no scarcity of goods. ”

“ 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. ”

“ It should be clearly understood that this artificial and unrestrained expansion, or inflation, as it is called, of the currency or of the titles to immediate purchasing power does not and cannot add to the total real purchasing power in existence, so that its effect must be to reduce the purchasing power of each unit of the 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. ”

“ But again, Government alone cannot bring down the rate of inflation. When a level of high inflation is expected to continue, then companies raise prices to protect their profit margins against prospective increases in wages and other costs, while workers demand higher wages as protection against expected price increases. ”

“ The fact of the buying and selling of gold by the Government at variable rates would itself be informative as to the object in view; and the constant clinging to par of the published index number of prices would be eloquent testimony of how the system worked.
Under our present system inflation can be suggested without the question of changing the purchasing power of the dollar being so clearly thrust forward, since our present system does not even pretend to, or afford any mechanism for, such stability. In fact, inflation almost invariably comes by subterfuge and indirection. ”

“ The miserable chimera of inflation, which began early in the century, developed in 1750 into a huge hydra which, through the intermittent stages, robbed the people of 90 per cent of the face value of the provincial output current at the time of redemption, besides arresting commerce and retarding the industrial interests of the community. Specie, which occasionally came into the province through the channels of commerce with Spain and the West Indies, was regularly transmitted to London. ”

“ In reality there is no such thing as an inflation of prices, relatively to gold. There is such a thing as a depreciated paper currency. ”

“ It is vain, however, to disguise the fact from ourselves that a speculative inflation of our currency without a corresponding inflation in other countries whose manufactures come into competition with our own must ever produce disastrous results to our domestic manufactures. ”

“ Prices have displayed a welcome stability in recent months and, if we are wise and resolute, we will not tolerate inflation in the years to come. But history makes clear the risks inherent in any failure to deal firmly with the .basic causes of inflation. ”

“ In the late eighties and early nineties, high inflation hindered economic activity and investment. The Real Plan, instituted in the spring of 1994, sought to break inflationary expectations by pegging the real to the US dollar. ”

“ 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. ”

“ Thus Inflation is unjust and Deflation is inexpedient. Of the two perhaps Deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is not necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned. ”