This is a forensic investigation of sorts, examining the motive, means, and opportunity for the Great Inflation to occur.
The Great Inflation was the defining macroeconomic event of the second half of the twentieth century.
Over the nearly two decades it lasted, the global monetary system established during World War II was abandoned, there were four economic recessions, two severe energy shortages, and the unprecedented peacetime implementation of wage and price controls.
As the world’s reserve currency, the US dollar had an additional problem. As inflation drifted higher during the latter half of the 1960s, US dollars were increasingly converted to gold, and in the summer of 1971, President Nixon halted the exchange of dollars for gold by foreign central banks.
Over the next two years, there was an attempt to salvage the global monetary system through the short-lived Smithsonian Agreement, but the new arrangement fared no better than Bretton Woods and it quickly broke down. With the last link to gold severed, most of the world’s currencies, including the US dollar, were now completely unanchored.
At the conclusion of World War II, Congress turned its attention to policies it hoped would promote greater economic stability.
Most notable among the laws that emerged was the Employment Act of 1946.
It had been in this vicinity over the preceding six years.
Inflation began ratcheting upward in the mid-1960s and reached more than 14 percent in 1980.
It eventually declined to average only 3.5 percent in the latter half of the 1980s.
While economists debate the relative importance of the factors that motivated and perpetuated inflation for more than a decade, there is little debate about its source.