Inflation battles for 2000 years

Press, 28 November 1979, Page 27

Inflation battles for 2000 years

By * J WILLIAM GUTTMANN in London The curse of rising prices and depreciating money is almost as old as money itself. In the Western world the familiar associations of inflation with printfng money galore is not older than a couple of centuries, though China, where they invented paper money suffered disastrously from inflation due to indiscriminate issue of paper currency as early as the eleventh century. But the method of depreciating money by simply reducirtg the content of precious metals in the coinage was already practised in ancient Rome. When Emperor Diocletian came to power tin A.D. 284 he found the empire in the throes of inflation caused by his predecessors, who had flooded the country with debased coins. He tried to stabilise the currency by issuing new gold and silver coins. But the new coins, hoarded by speculators, disappeared. Back came the old, debased ones and, with them, more inflation. This is an early example of “Gresham’s Law’’ — that bad money drives out good — so-called because it has been wrongly attributed to Sir Thomas Gresham (1519-79), who founded the Royal Exchange. Diocletian also tried to fix incomes and wages — the first essay in an incomes policy in history. It failed and, after he abdicated, was abandoned. In the 1500 s Spain’s conquests in the Americas were followed by the influx of vast quantities of gold and silver. The impact of this big increase in purchasing power drove up prices by hundreds of per cent. Cheap goods were imported and national industry stagnated. The consequences for Spain were disastrous economically and, ultimately, politically.

About 1720 we encounter the first paper money inflation, in France. It was caused by financial manipulations by John Law, a Scotsman who enjoyed royal patronage. The manipulations were based on shares in a company set up tq exploit France’s overseas possessions, and triggered off a wave of frantic speculation in the shares. Speculators made great fortunes and rushed to invest their paper profits in “inflation hedges” — land, gold, and jewellery — driving prices skyhigh. Again, after the Revolution. the French Government issued bonds (assignats) which, as they multiplied, assumed the role of actual money. By 1975 their value had sunk to less than 1/500 of the gold franc. Inflation followed the American Revolution, too, when the new republic resorted to printing money (which, Benjamin Franklin noted shrewdly, was but a form of taxation), so that the newly printed “Continental Dollars” became worthless. A suggestion to control prices and incomes was disdainfully rejected

as contrary to the principles of individual freedom. Almost half a cnetury of general monetary stability preceded World War I. But the war and its consequences heralded a series of unprecedented inflations. The losers, of course, were hardest hit, the record being held by Germany, where ultimately the value of a pre-war mark was represented by a million paper marks. World War II generated another bout of inflation. An all-time record was achieved by Hungary, where the pre-war currency unit, based on gold, was valued at 130 trillion units. Since then inflation has been endemic in the world. The proud dollar is depreciating, at the moment, at a rate of 13 per cent, not much less than Britian’s inflation of about 16 per cent. Even the West Germans, who, after their dire experiences, would make any sacrifice to avoid inflation, have seen their currency depreciate at the — for them — alarming rate of 5 per cent. O.F.N.S. Copyright.