Fifty years ago, the Minneapolis Tribune reported a silver lining in an otherwise gloomy economic climate.
“Christmas tree prices aren’t expected to rise this season,” the newspaper reported in November 1974, “a small solace for many struggling Minnesota families.”
“Everybody’s desperate tryin’ to make ends meet,” Warren Zevon sang, “Work all day they still can’t pay the price of gasoline and meat…Even Jimmy Carter,” he concluded, “has got the highway blues.”
Winners and Losers: Taxes and Commodities
Inflation produced winners and losers.
“I’m tired of paying for politicians’ dinners and lunches when my family can’t afford to go out to dinner even once a month,” another letter to Brown read. “I’m tired of doing without so you all can have everything.”
Disinflation soon turned these winners into losers. Even with the worst drought since the 1930s, prices fell. Wheat prices tumbled from $5.85 a bushel in 1974 to $1.92 in 1977, and corn prices fell by 50 percent. Crop losses in Murray County totaled $25 million.
Attitudes: Saving and Borrowing
Savers were losers, and borrowers were winners, so inflation altered attitudes toward saving and borrowing. Schulman writes that:
“Depression babies—people who grew up during the 1930s—possessed a certain approach to life, a certain suspicion about good times, a thriftiness, a tendency to reuse tea bags and never throw anything away. The Great Inflation produced its own generation, altering Americans’ relationship to money, government, and each other.”
“‘Never buy what you can’t afford’ was the admonition of our parents,” economist Christopher Rupkey wrote in The New York Times. “Today, the statement has been changed to, ‘You can’t afford to buy it.” More young couples:
“… live in the same comfortable homes and sit in the same sumptuous sofas that are equal or better than those of their parents, many of whom worked for years to obtain what their children get with a simple flash of a credit card …. Get your money out of the bank and spend it!”
Several innovations, from credit cards to Money Market Mutual Funds, facilitated this, and consumer borrowing rose from $167 billion in 1975 to $315 billion in 1979. Rupkey concluded, “Inflation gives the most it has to give to those with the largest piles of debts.”
A Crisis of Government
Inflation made the government look helpless. Economist Alfred Kahn, appointed by Carter as special advisor on inflation, believed that it:
“… was not just an economic problem but a profoundly social problem—a sign of society in some degree in dissolution, in which individuals and groups seek their self-interest and demand money compensation and government programs that simply add up to more than the economy is capable of supplying.”
This was attractive politically; it shifted the blame. “I do not have all the answers. Nobody does,” Carter said in 1978, “Perhaps there is no complete and adequate answer.” But, alongside the seizure of American hostages in Iran in November 1979 and subsequent bungled rescue attempt and renewed Soviet aggression, seen in the invasion of Afghanistan the following month, this made Carter’s administration seem weak. The New York Times wrote that the American Dream had been replaced by the:
“… dismay and confusion that accumulate when inflation and recession change the value of money and all that money means, culturally and psychologically; when the assumptions of several generations about America’s expertise and leadership and this country’s pre-eminent place in the world are jumbled and wounded; when values are distorted and called into question by economic conditions that affect, in different ways, every class in society.”
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By continuing inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily, and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless, and the process of wealth-getting degenerates into a gamble and a lottery.”
The American inflation of the 1970s illustrates this perfectly.
It remains to be seen whether we have learned anything since or are doomed to repeat and relive the “utter disorder” of fluctuating values.
