In 1665 thebasiccostoflivingwassetto a valueof “5”. Whatismoststrikingaboutthischarttomeisthatfrom 1665 to 1776 therewasabsolutelynoinflation. Zero. None.
Thatis, over a onehundredandelevenyearperiodifyousaved a dollaryouhad a dollar. Putanothertimelineunderthisone, with 1903 ononeendand 2014 ontheother.
Tocontrastthistotoday, ifonehundredandelevenyearsagoyousaved a dollar, todayyouwouldhaveabout 2 cents. OK - backtothechart.
Alongcame a war, theRevolutionaryWar, andthecountryfounditselfunabletopayforthewarwiththegoldandsilvertobefoundinthetreasury.
So a papercurrencycalledthe “Continental” wasprinted, andatfirstitwasfullybackedby a specifiedamountofrealgoldand/orsilverinthetreasury.
ThentheBritish, awareofthecorrosiveeffectsofinflationon a society, startedcounterfeitinganddistributingvastamountsofboguscontinentalsandsoonthecurrencybegantocollapse.
Seenontheinflationchart, theRevolutionaryWartookthegeneralpricelevelfrom a readingof “5” to a readingof “8” whichis a prettyseriousincreaseofsome 60% insoshort a time.
Why? Tworeasons. FirstAmericawasnolongeron a goldstandard, butinstead a fiatpaperstandardadministeredbytheFederalReserve, andthepopulacedidnothaveanotherformofmoneytowhichitcouldturninpreference.
AndsecondinsteadofdismantlingthewarapparatusuponconclusionofhostilitiesthePentagonwasbuilt, fullmobilizationwasmaintainedand a protractedcoldwarwasfought; certainlyasinflationary a conflictasanyshootingwareverwas.
Wediscussedthereasonwhybackinthechapteronmoneyandwealthwherewenotedthatpricescanonlyremainstableifthereis a stablerelationshipbetweentheamountofcirculatingcurrencyandthethingsweneedandwanttobuy.
Whenthegovernmentborrowsmoneythatisprintedoutofthinairby a compliantcentralbank, thenewmoneydefinitelyhasrealpurchasingpower. Butwheredidthatcomefrom?
Bydefinitionitisnotpossibletoprintuprealthings, onlypurchasingpowersoanyandallactsofprintingsimplyremoves a tinyfractionofthevalueofalltheotheroutstandingmoneyandgivesthatrealpurchasingpowertothenewmoney.
Atanyrate, backtoourmainstory. Here’s inflationbetween 1665 and 1975.
Thatis, youexpectinflationandplanforit, asifitwereanunavoidablefeatureoflifelikegravity. But I hopewe'veshownyouthatsustainedinflationwasn't always a permanentconditionoflifebutrather a recentdevelopment.
Andthecauseofthatpersistentinflationissimplythatmoneyanddebthavebeengrowingfasterthantheeconomyon a percentagebasisfordecades.
ThewealthdisparityintheUSisnowaslargeasithaseverbeenandthatislargelyjust a knownside-effectofcentralbankprinting.
andafter a point, additionalmoneyintheirhandsdoesnotstimulateasmuchinthewayofadditionalpurchasingofthingslikebreadandgasoline...there's onlysomuchonecanconsume.
Nowifyou’reof a mindthatthere’s noreasonthatallthreeofthesegraphscannotjustcontinuetoexponentiallyacceleratetoever-higheramounts, withoutend, thenthere’s nopointinwatchingtherestoftheCrashCourse.
However, ifyoudon’t happentobelievethat, thenyou’regoingtowanttoseetherestofthevideoseries.
Allright, thepointofthissectionwastohelpyouappreciatethefactthatourcountryhasnotalwayslivedunder a regimeofperpetualinflation, andthat, historicallyspeaking, it’s actually a ratherrecentdevelopment.
Sonowwehaveournextkeyconcept: Inflationiseverywhereandalways a monetaryphenomenon.
Flipped a bit, wecansaythatinflationis a deliberateactofpolicy.
Wemightalsoobservethatthispolicybenefits a verysmallgroupofindividualsandinstitutionsattheexpenseofliterallyeverybodyelse.