Our system is based on fiat currency which is quite literally debt, bankers originally used the notes we have now as a form of debt where the depositers would put in their gold and they would be given notes in return as proof of their deposit. Eventually the banks started using the notes as currency and kept the gold for themselves, this is a large part of the problem. The notes we have now are not a real representation of the amount of gold or silver within their reserves. In fact, we likely have bugger all idea of how much they really have. The federal reserve is largely responsible for abusing this system by the printing of their money beyond what they actually own which causes inflation. Of course they aren't the only ones who do it, but they have had the most influence and have happily screwed over the markets with these practices for the past century.
Lethn is correct. Don't be fooled: inflation is not "caused by" commodity prices; commodity prices are evidence of inflation. Inflation in the 70's was caused by the same thing that is causing it today, and the same thing that has been causing it since 1913. That's right, it's caused by the Federal Reserve Bank, to facilitate government deficit spending. That's all there is to it. Check out this website: http://www.measuringworth.com/uscompare/ You can see the value of a dollar throughout US history since 1774. There was no inflation before the Federal Reserve. That is all
Horrid monetary policy and horrid fiscal policy. What Watergate has made many forget is how horrible Nixon's domestic economic policy was. His wage and price controls simply forced suppiers to cut back and demand to be higher than it otherwise would have - leading to an explosion in prices once the controls were inevitably lifted. In the election year of 1972, he also put the screws on Arthur Burns to lower interest rates in the face of incipient inflation. One of the great myths of American history is that Nixon was a decent president except for the whole Watergate thing. Nothing could be further from the truth - he was a disaster. I believe he was also the one who brought Alan Greenspan from the private sector (where he was incompetent, but couldn't do a lot of harm) into the government (where his incompetence nearly brought down Western capitalsim).
Vietnam. We got into that quagmire that pretty much was the straw that broke the camels back which caused countries to lose confidence in the dollar and start asking for redemptions at 35 dollars an ounce of gold so they can then arb it on the open market and profit risk free. Nixon had to stop redemptions since we did not have enough gold to meet calls. If we never got into Vietnam I think we would be in a much better place.
Johnson's Guns and Butter policy (Vietnam War spending + deficit spending + Fed keeping rates too low), Nixon closing the gold window, Baby Boomer labor shock.
I always wondered this. I mean the 70s had 10% inflation, not 100%, not 3% like the rest of the last 100 years since 1913. It was something different, and as much as I want to buy the "Fed printing stuff" argument, they've always done that... To me the best argument seems to be that other countries were dumping dollars, therefore import prices rise, therefore costs are under pressure, therefore everyone increases their price to better cope with rising costs.
My recollection was Jimmy Carter who put too much faith in Keynes. Bet on the fact that as unemployment rose in the recession that inflation would subside. Started with higher oil. What followed was one of the worst periods of stagflation in our nations history. This is why Jimmy Carter started wearing sweaters. To get americans to conserve energy. I always thought it was because he wanted to look like Lou Carnesecca.
Agree- was in my 30's then. 60's Great Society, Vietnam, illegal to own gold, Fed policy to "pay" for it. Wish i had the money i paid in taxes then. 70% income, 70% inheritance. was no stock market till Volker 'purged' the system with 18% rates in the 80's , and the .com started.