America's Only Peacetime Inflation: The 1970s

The 1970s were America's only peacetime inflation: the only time when uncertainty about prices made every business decision a speculation on monetary policy. In magnitude, the total increase in the price level as a result of the sustained spurt in peacetime inflation to the five-to-ten percent per year range in the 1970s was as large as the jumps in the price level as a result of the major wars of this century. The truest cause of the 1970s inflation was the shadow of the Great Depression. The memory of the Depression created a predisposition on the left and center of political opinion that any unemployment rate was too high, and eliminated whatever mandate the Federal Reserve might have had for controlling inflation by risking high unemployment. The Federal Reserve gained a mandate to control inflation at the risk of unemployment during the 1970s, as a result of the discontent and anxiety produced by that decade's inflation. But it is difficult to see how the Federal Reserve could have acquired such freedom of action in the absence of an unpleasant object lesson like the inflation of the 1970s. Thus the memory of the Great Depression meant that the U.S. was highly likely to suffer an inflationary episode like the 1970s in the post-World War II period—maybe not as long, and maybe not exactly when it occurred, but nevertheless a similar episode download.