Are We Headed for Inflation? A Look at Money, Power, and Recession

Has the age of inflation returned? For as long as there are business cycles and governmental temptations to overspend, inflation will remain a permanent fixture. Recessions accompanied by insignificant inflation or deflation also still shape our economic landscape.

Inflation: An Inevitable Outcome

Plagued by human nature, overprizing and overprinting of money have been common practices among power-seeking leaders. These actions, while detrimental, are inevitable. The over-printing of money to finance overspending, over-taxes, and over-borrowing results in inflation, robbing the poor and granting politicians more leverage to bribe voters and pay off cronies.

Monetary Supply: The Key to Inflation and Deflation

Inflation is directly linked to an expanding monetary supply, whereas deflation is associated with a contracting monetary supply. This duality makes both terms reliable and accurate descriptors of economic phenomena. According to Say's Law, there cannot be a market constipation. Goods are always in circulation, and as such, the amount of money in circulation is always sufficient to clear the market.

Historical Context and the Power of Deflation

In the late 19th century, deflation was the rule. The Gilded Age, marked by a series of gold and silver strikes, exhibited a period of steady deflation. My great-grandparents, like many others in rural Texas, prospered during this era due to their thrift and enterprise. These deflationary times made savings more valuable and earned wages more lucrative for workers who could keep their savings over time.

The Gilded Age and the Shifting of Wealth

The Gilded Age saw an economic landscape where earners, not debters, prospered. As savings grew in value, common workers were more content with maintaining their current wages rather than demanding higher ones. The wealthy, often aided by the government and high-finance circles, profited more under a policy of steady inflation and the introduction of the income tax. This created a psychological belief among workers that their wages were increasing when, in fact, their purchasing power was not.

Modern-Day Challenges: Nixon Shock and Cost of Living Adjustments

The Nixon Shock of the 1970s marked a significant turning point, as Richard Nixon declared the U.S. dollar a fiat currency, dispensing with its gold backing. The cost of living was recalculated, often excluding key commodities leading to a skewed perception of inflation. While the inherent challenges of money management persist, addressing them requires a stringent approach to political and economic leadership.

Conclusion

While addressing the issues of inflation, deflation, and the expansion of the monetary supply remains an ongoing challenge, we must prioritize the well-being of the general populace. Effective monetary policies, coupled with responsible governance, can prevent the return to a pre-industrial serfdom.