In 1928, economist Irving Fisher wrote a book called “The Money Illusion” that was all about inflation.
The best way to view think about inflation back then was through the lens of wars and how they impacted the economy. Fisher lays out that relationship:
“Usually inflation comes when governments are in financial straits, especially in war time, or after a war has crippled the government’s financial powers. War has always been by far the greatest expander of paper money and credit, and therefore the cause of the greatest price upheavals in history.“
Basically, the way things played out in the late-19th and early-20th centuries went something like this:
- First, there would be a period of uncertainty during the war in terms of the outcome and which countries would be impacted the most.
- Next, there would be a post-war recovery from all of the government spending during the war.
- All of that spending would lead to an overheating of the economy, inflation and then a bust that would inevitably follow the boom.
- And after a post-war depression the economy would find its footing until the next war came along.
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Written By: Ben Carlson
Published By: www.awealthofcommonsense.com