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  • yourbestfriendintheworld yourbestfriendintheworld Dec 3, 2012 7:02 PM Flag

    Mr.phil2u spoke of carter price controls


    Except it's not true. There were plenty of inflationary periods under the Gold Standard, and they were more volatile because of the inefficiency of using a heavy rock as money on a planet that's got banks that are 20,000 km apart. There was also the problem of starvation for the commodity itself, which was the crisis that faced Nixon. The other nations signatory to the Bretton Woods agreement started to squeeze the US and demand gold be delivered. That was increasing the US's cost of capital, and Nixon kicked Bretton Woods out to prevent being cornered.

    The inflation was caused by the same thing that's always caused predictable inflations: the cost of war. When population and productivity growth are accounted for, the history of inflation and recession consist of relative stability punctuated by huge spikes in wartime. Nixon's decision to prolong and expand the Viet Nam war is what caused the double-digit inflation of the 70s and 80s.

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    • Wrong.

      The major inflationary periods under the gold standard happened when the supply of gold went up. Do a little research and look up the price of gold during a gold rush.

      You're mistaking an effect for a cause. In order to finance the Vietnam War, the U.S. printed money, increasing the money supply. Because the dollar was no longer locked to a gold standard, more and more dollars were produced. Hence the great inflationary period of the 1970s.

      More dollars means each dollar is worth less, inflation.

      Now let's take a history lesson. During both World Wars, each country that was involved in the fighting went off the gold standard. Why? To pay for the war with worthless currency. The result was rampant inflation. If the countries that fought during World War 1 stayed on the gold standard, the war would have been over in 6 months due to lack of funds, hence the prediction of many that thought the war would be short.

      That is why you are associating inflation with war.

    • To add a little detail, what Paul told me [who was party to the decision] was that going off the gold standard made dollars worth a lot less. The effect of that was that imported items cost a lot more [i.e. it took more dollars to buy them] ... the biggest example being oil, of course. Higher cost = higher inflation. The wars just made the effect worse. Now, I graduated in 1975 so I wasn't there to ask him directly about Carter, but the situation seems clear to me.

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