What is Inflation?




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Inflation isn’t new — this man-made disaster has bedeviled civilizations at least since ancient Rome.

In order to pay for his extravagant expenses, the first century Roman emperor Nero debased the roman, currency the denarius.

How did he do it?

By replacing silver, which was valuable, with copper which was not. And that was just the beginning.

Rome’s corrupt governments debase the coinage on a regular basis. By the 4th century, the price of wheat was two million times higher than it had been in the mid-second century. By the 5th century Rome was finished overrun not by barbarians — but by inflation.

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In the 16th century English King Henry VIII did essentially the same thing with England’s coinage to pay for his wars, divorces and debaucheries.

In what became known as the Great Debasement, food prices soared. Ultimately Henry left it to his daughter Queen Elizabeth the first to clean things up by issuing new, high-quality coinage, setting the stage for the emergence of England as a great power.

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The Continental Congress of the American Revolution tried to print its way out of its money problems by paying soldiers with paper money. Fhe first US currency, the Continental Dollar, was so over printed that it became confetti, collapsing into hyperinflationary oblivion.

Alexander Hamilton the first treasury secretary saved the day by linking the US dollar to gold.

Figures like Elizabeth the First and Alexander Hamilton are rare — these stories usually end up badly.

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In the 1920s, rampant money printing by the Weimar Republic in Germany led to hyperinflation, economic collapse — and ultimately the rise of Adolf Hitler.

Argentina once the most prosperous country in South America has never really recovered from its wild money printing in the 1950s.

And Zimbabwe now one of Africa’s poorest and most corrupt nations is infamous for its 100 trillion dollar bill.

Look for the source of a society’s collapse and you’ll usually find the “I word”.

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So what exactly is inflation?

There are two types non-monetary and monetary.

When a hurricane slams the Gulf of Mexico, interrupting fuel production, the price of gasoline rises. This is non-monetary inflation, the rise of prices due to some external event.

Over time the market recovers and prices normalize.

Monetary inflation is something entirely different: it’s the distortion of prices that occurs when money loses value; it’s that feeling that something isn’t right.

Why is my weekly grocery bill, which used to be one hundred dollars, now two hundred dollars?

Because your money is losing value. It’s not that bananas have suddenly become more valuable; it’s that your monies become less valuable.

This can happen rapidly as we’ve seen since 2021 . . . or slowly over time for example in 1970, a can of coke cost a dime, a big mac 65 cents. Fifty years later a big mac, is five bucks, and you’d be lucky to get a sold out of a vending machine for two dollars.

Obviously these products haven’t changed: it’s the dollar that’s worth far less.

This slow motion devaluation of the dollar is why young people today can barely make rent . . . when years ago their parents who made far fewer dollars could buy a house. Their dollars were worth much more.

If you feel cheated by that, I don’t blame you. You have been.

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So where should your anger be directed?

You can start with our 37th president, Richard Nixon. The worst thing he did was not Watergate it was taking us off the gold standard in 1971, which Alexander Hamilton had put in place two centuries prior.

This allowed the federal government to print dollars more or less at will had the us dollar stayed connected to the gold standard it’s estimated that today’s economy would be at least 50 percent larger than it is.

In the universe without inflation you could buy that house.

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So what is the dollar’s value linked to now if not gold?

Nothing more than faith — the faith that the money you have today will be worth the same tomorrow, next year and the year after.

But it becomes harder and harder to maintain that faith as the US government prints trillions of dollars to pay for its outrageous spending.

The most devastating effect of inflation is its impact on social trust; money after all was invented to enable trade between strangers by providing a mutually agreed upon unit of value.

It is a facilitator of trust.

Without that trust, trade, social relationships and life as we know it ultimately unravel.

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So are we doomed to this fate?

No, just like England wasn’t and America wasn’t at its founding.

We must once again link the dollar to a stable anchor — gold or some other trustworthy standard.

The time to start that debate is now — or we will go the way of Rome and you can bet your bottom denarius on it.

I’m Steve Forbes co-author of Inflation. What it is, Why it’s Bad and How to Fix it for Pager University.

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Euro. Inflation is a modern phenomenon that began during the industrial revolution in the late 1800s. True or false?

US Dollar. Did Emperor Nero order a decree that lowered the value of the denarius? Was the Roman Empire simply overthrown by barbarians?

Swiss Franc. King Henry VIII caused inflation by overspending on welfare, social security (pensions), child care support and universal heath care? Did England go bankrupt?

UK Pound Sterling. The United States never had problems with inflation, because Alexander Hamilton increased the interest rates. Is this right or wrong?

Yuan, RMB. The German people voted for the Nazi Party and Adolf Hitler (solely) because they were extreme nationalists. Is this correct or incorrect?

Russian Ruble. What are the two types of inflation that Steve Forbes talks about? According to him, what is the underlying cause of inflation?

Indian Rupee. What backs up the US dollar? Is the US dollar pegged to anything? What does Steve Forbes recommend?
Mexican Peso. Has your currency fluctuated in value?

Polish zloty. Do people have strong faith in the national currency?

Turkish lira. What are some problems with money and national currencies?

Venezuelan Bolivares. What might happen in the future?

Thai Baht. What could or should people, businesses and governments do?

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