A 21st Century Cross of Gold

You might remember form your high school history (for the U.S.-ians, anyway) Democratic Senator William Jennings Bryan’s speech about a “cross of gold“, in which he argued that bimetalism–moving from a gold standard to a gold and silver standard–would bring economic prosperity*. Bryan claimed that being on a gold and silver standard, because there was a lot of silver available, would be inflationary (at the time, the economy was in a true deflationary phase). Farmers**, who had loans to repay, would be able to repay those loans more easily, as inflation would erode the true cost of the payments.

Needless to say, ‘the money interest’, which had taken over the Republican Party, didn’t like this, and opposed Bryan.

I bring up this bit of history because, in all of the histrionics about TEH INFLATIONZ!! that conservatives claim will occur due to the Democratic rescue bill (the American Rescue Plan, which was passed only by Democrats), we seem to have forgotten that if inflation were to increase, that would hurt some people (lenders and fixed rate bond holders), but it would help others (borrowers). Whether or not this has–and has had–any relevance to people with student loans is left as an exercise for the reader.

We now outsource this to economist Claudia Sahm (boldface mine):

In response to the stagflation that began in the late 1970s, the Fed chair at the time, Paul Volcker, aggressively raised interest rates to 20 percent — and yes, inflation fell from 13 percent to 3 percent within three years. But unemployment rose to double digits. Millions of small businesses and consumers were crushed by the skyrocketing interest rates.

I was 5 years old then, and because of these monetary policies my family barely held onto our three-generation family farm. Others weren’t so lucky.

Inflation hawks seldom remind us that wealthy investors are hurt by inflation and lower-income borrowers are helped: For example, paying off a fixed-rate loan is easier when wages and prices rise by, say, 5 percent a year rather than 2 percent. People have more money to pay the debt, and when creditors get their money back, it’s worth less. When framed this way, zealously guarding against any significant uptick in inflation feels less like responsible stewardship and more like a classist double whammy — increased cost of debt and fewer jobs.

After defeating inflation, Paul Volcker was lionized among central bankers and Wall Street, but mistrusted by Main Street. (As his Times obituary explains, after he put sky-high interest rates in place “farmers on tractors circled the Fed’s headquarters” and “auto dealers sent the keys to cars they could not sell.”) Mr. Volcker and the Fed had all but trampled the green shoots from the Great Society.

This is the first time I can remember in years–and I mean many, many years where a major newspaper has run an op-ed reminding people that modest inflation is not necessarily a bad thing (no one is calling for WEIMAR11!!!11 or Zimbabwe’s levels of inflation, nor is there any reason to think this would happen).

Anyone with student loans or other debts they’re having a hard time repaying would be better off if inflation ‘skyrocketed’ to were it was for the second half of Reagan’s presidency (about four percent).

Amazing what we have forgotten–though that might be willful forgetting in some quarters.

Of course, the Populist Party argued for a ‘greenback’, that is, fiat currency. Which is what we have now.

**Other people too, but Bryan was pitching his appeal to farming areas.

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2 Responses to A 21st Century Cross of Gold

  1. jrs says:

    It depends on what it is inflation in. If it’s inflation in rent that hurts anyone paying rent, but is far less of a burden to the more affluent homeowners with fixed rate mortgages. They are affluent enough to buy and thus to have locked in their housing costs, most renters aren’t, although a lucky few do benefit from having rent controlled apartments. If it’s inflation in food, healthcare and other basic necessities wages seldom keep up, many employers hardly give raises anymore, they are unlikely to suddenly become more generous just because the powers that be have said there is more inflation. However there has been inflation in rents and healthcare far exceeding the CPI for a few decades and it somehow always gets offset by cheap flat screen t.v.s or something like that in the inflation measures. So if never registers even though everyone knows life seems to keep getting harder.

    It’s not so much that the stimulus will be inflationary, as that Fed policy seems to be shifting on inflation as well, that has some people worried about the possibility of inflation. But of course so much Fed policy has been inflationary in things like housing prices for decades already.

  2. kaleberg says:

    Rent inflation is much more of a problem when wages are stagnant. We already have rent inflation in areas where it is relatively easy to get a job, but that inflation is relentless. It is much milder or does not exist in areas where jobs are harder to get.

    I lived through inflation in the 1970s, and never quite recognized it as a serious problem. My wages went up, my rent went up, food went up and so on, but while some things, like gasoline, got more relatively expensive, I was actually moving up the food chain.

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