How Inflation Touches Every Man’s Pocketbook

In 1920, inflation was rampant, with prices double what they’d been five years prior. That would quickly change: prices would peak that June, then decline, fluctuate, and not exceed their June 1920 levels again until November 1946.

What was the primary cause of huge inflation from 1915 to 1920? According to Johns Hopkins political economy professor Jacob Hollander in this article from the time, the primary cause was quantitative easing:

The amount of money which the Government and the banks have supplied the country for the purpose of carrying on its business is twice as great as it was five years ago. The business of the country consists in producing goods and services and in exchanging them.

The amount of things to be exchanged — goods and services — is practically no greater than it was before the war. But we have been supplied with twice as much money to do this exchanging. Consequently two dollars are worth no more than one was before; or, what amount to the same thing, prices have doubled. This condition of having twice as many money units with which to carry on the country’s business is what we mean by inflation.

In other words, it was largely the politicians’ fault:

Inflation is due to the financial mistakes of the Administration at Washington (1) while we were getting ready for war, (2) while we were at war, and (3) after war was over. During each of these periods the Treasury permitted and, indeed, encouraged an increase in the country’s money supply, with the certain prospect of rising prices.

What about in the modern era? As of March 2020, prices were about double what they’d been in April 1990. That means it took about three full decades for prices to double, far more than the five years it took from 1915 to 1920.

 

 

How Inflation Touches Every Man’s Pocketbook: Primer in H.C.L., Prepared by Expert, Shows Why Dollar Does Only Half as Much Work as Before War–Remedies Are Difficult (PDF)

Published: Sunday, May 2, 1920

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Written by Jesse

April 29th, 2020 at 3:01 pm

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