“We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and fixed-income elderly alike.” – Ronald Reagan, January 20, 1981.
The day after Ronald Reagan’s election as the 40th president in 1980, Steven Hayward, the author of The Age of Reagan, noted that the “dollar rallied sharply on overseas markets.” The dollar’s rise was in fairness a mere continuation of something that had begun the previous January.
In January of 1980, gold hit an all-time high of $875. As the most constant measure of value in the world, gold’s rise from $35/ounce in 1971 to $875 signaled a substantial decline in the value of the dollar. Though modern economists horrifyingly view inflation as a function of too much economic growth, its real definition is a decline in the value of the currency; in our case the dollar. In short, and as is well known about a period when the value of the dollar collapsed, the ‘70s was an inflationary decade.
Though this showed up in a CPI (13% by 1980) that was far more reflective of monetary error than today’s (more on that later), Reagan properly did not explain inflation in terms of prices. As Hayward put it, the notion that “price increases cause inflation” is “akin to the logic that wet sidewalks cause rain.”
Or as Reagan put it when asked about inflation at a press conference early in his presidency:
“Why in the list of inflationary forces did I not mention gasoline prices and home heating fuel prices? Well, I have to believe that to a certain extent, I know that’s an unusual situation, prices are not so much the cause of inflation – price rises – they’re the result.”
Read More at Forbes . By John Tamny.
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