Member-only story

What the Government Has Done to Our Money: A History of Inflation and Monetary Policy

Melvin Blair

·12.3k Followers· Follow

Published in What Has Government Done To Our Money?

6 min read · 2 weeks before

687 View Claps

77 Respond

Save

Listen

Since its inception, governments have played a significant role in the management of money. They have issued currency, controlled its supply, and influenced its value through monetary policy. However, the government's involvement in money has not always been without controversy. In recent decades, concerns have grown over the potential for government intervention to lead to inflation and a decline in the value of money.

What Has Government Done to Our Money?

by Murray N. Rothbard

4.6 out of 5

Language	:	English
File size	:	593 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	116 pages

This article will examine the historical evolution of government involvement in money and its impact on inflation. We will trace the development of monetary policy from its origins in the gold standard to the present day. Along the way, we will discuss the various theories of inflation and the role that government has played in its causes and consequences.

The Evolution of Monetary Policy

The Gold Standard

The earliest forms of money were based on precious metals, such as gold and silver. These metals were valued for their intrinsic worth and their durability. In the 19th century, many countries adopted the gold standard, which pegged the value of their currency to a fixed amount of gold. This system helped to stabilize exchange rates and promote international trade.

Fiat Currency

In the early 20th century, many countries began to abandon the gold standard and issue fiat currency, which is not backed by any physical commodity. Fiat currency is based solely on the faith and credit of the issuing government. It is typically managed by a central bank, which controls the supply of money and interest rates.

Monetary Theory

The evolution of monetary policy has been influenced by the development of monetary theory. In the early 20th century, economists such as Irving Fisher and Milton Friedman developed models that explained how changes in the money supply could affect the price level. These models provided the foundation for modern monetary policy.

Inflation

Inflation is a persistent increase in the price level. It occurs when the money supply grows faster than the supply of goods and services. Inflation can have a number of negative consequences, including a decline in purchasing power, a loss of confidence in the currency, and economic instability.

Causes of Inflation

There are a number of factors that can contribute to inflation, including:

An increase in the money supply
A decrease in the supply of goods and services
Increased demand for goods and services
Government spending
Natural disasters

Types of Inflation

There are two main types of inflation:

Demand-pull inflation occurs when demand exceeds supply. This type of inflation is often caused by an expansionary monetary policy or a fiscal stimulus.
Cost-push inflation occurs when the cost of producing goods and services increases. This type of inflation is often caused by a supply shock, such as a natural disaster or a sharp increase in the price of oil.

Government Intervention

Governments can use monetary policy to control inflation. Monetary policy involves manipulating the supply of money and interest rates. The Federal Reserve is the central bank of the United States and is responsible for conducting monetary policy.

The Federal Reserve has a number of tools at its disposal to control inflation, including:

Open market operations: The Fed can buy and sell Treasury securities in the open market. When the Fed buys Treasury securities, it increases the money supply. When the Fed sells Treasury securities, it decreases the money supply.
Reserve requirements: The Fed can change the amount of reserves that banks are required to hold. When the Fed increases reserve requirements, it reduces the amount of money that banks can lend. When the Fed decreases reserve requirements, it expands the amount of money that banks can lend.
Discount rate: The Fed can change the interest rate that it charges banks for loans. When the Fed increases the discount rate, it becomes more expensive for banks to borrow money. When the Fed decreases the discount rate, it becomes cheaper for banks to borrow money.

The Fed uses these tools to target inflation. The Fed's current target inflation rate is 2%. The Fed will use monetary policy to keep inflation close to this target.

The government has a significant role in the management of money and inflation. Monetary policy can be used to control inflation and promote economic stability. However, government intervention can also lead to inflation if it is not managed carefully.

In recent years, concerns have grown over the potential for government spending and monetary policy to lead to inflation. These concerns are valid, but it is important to remember that the government also has a role to play in managing inflation. The Fed has a number of tools at its disposal to control inflation, and it is committed to keeping inflation close to its target of 2%.

What Has Government Done to Our Money?

by Murray N. Rothbard

4.6 out of 5