Sunday, January 6, 2013

The Creation of the Fed and the End of the Gold Standard Has Resulted in Massive Price Inflation

Yesterday at the American Economic Association's 2013 Annual Meeting, Carmen Reinhart and Ken Rogoff offered a paper titled Shifting Mandates: The Federal Reserve’s First Centennial.

The paper included a  chart of inflation in the U.. since 1775.  The authors argue that inflation didn't take off until the U.S. went off the gold standard in 1933, reports Business Insider.

From the paper:
It is probable that in 1913, while financial panics were not uncommon, high inflation was still largely seen by the founders of the Fed as a relatively rare phenomenon associated with wars and their immediate aftermath. Figure 1 plots the US price level from 1775 (set equal to one) until 2012. In 1913 prices were only about 20 percent higher than in 1775 and around 40 percent lower than in 1813, during the War of 1812. Whatever the mandates of the Federal Reserve, it is clear that the evolution of the price level in the United States is dominated by the abandonment of the gold standard in 1933 and the adoption of fiat money subsequently.    One hundred years after its creation, consumer prices are about 30 times higher than what they were in 1913. This pattern, in varying orders of magnitudes, repeats itself across nearly all countries.

How powerful is this data? The generally anti-gold Business Insider is running this story and BI co-founder Henry Blodget is tweeting it out with this comment: "There was basically no inflation for ~150 years... then we went off the gold standard."


  1. Maybe austrian economists need to start publishing in mainstream economics journals?

  2. Sam Ro who published the article seems to be on the "gold side". I've noticed this for quite some time. He seems to be a complete opposite of his colleague, (in my mind) the ridiculous Joe Weisenthal.

  3. In 1977, Congress passed the Federal Reserve Reform Act, which was the first time Fed monetary policy was directed to pursue 'stable prices.' How stable have prices been since 1977, looking at that graph? I guess it depends on what you mean by 'stable.'

  4. Ha ha. Unfortunately being proven right time and time again still leaves us all proper furked.

  5. "Maybe austrian economists need to start publishing in mainstream economics journals?"

    That's not up to the austrians, it's up to the journals.