Prices & Inflation

Cumulative Inflation (CPI)

Consumer Price Index — cumulative price level change (1913=100)

CPI Level

Key events

Common Claim

“Prices were stable under the gold standard, then inflation exploded after 1971.”

What the Data Shows

Moderate, predictable inflation (averaging 2-3%) has been a feature of fiat currency systems since the 1980s. The high-volatility inflation of the 1970s was caused by oil shocks, not just monetary policy. Under the gold standard, deflationary spirals caused devastating depressions.

Perspectives

skeptic

This chart just shows that inflation exists

The chart is mathematically trivial: compound 2-3% over a century and you get a big number. The gold standard produced price stability on average, but with violent swings: 100% inflation during WWI, then 25% deflation during the Depression. Modern fiat money with inflation targeting has delivered far more predictable prices.

neutral

Inflation is a feature, not a bug — but it must be managed

The fiat system does produce continuous inflation — that's by design. The key question is rate and predictability. Since 1983, inflation has averaged ~2.5% — stable and predictable. The gold standard's price stability came with devastating deflationary crises and limited crisis-response tools.

believer

The dollar has lost 98% of its purchasing power since 1913

The cumulative destruction of purchasing power is undeniable. A gold-denominated dollar held its value over centuries. The fiat dollar loses value every year. This is a hidden tax on savers and workers whose wages don't keep up with rising prices. The acceleration after 1971 is visible in the chart's exponential curve.

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neutral

Inflation is a feature, not a bug — but it must be managed

Moderate inflation is an intentional choice by central banks. The 1970s showed what happens when inflation is mismanaged; the post-1982 era showed it can be tamed.

Causal Factors

Cumulative compounding is mathematical certainty

30%

Even at the Fed's target of 2%, prices double every 36 years. This chart simply shows that 2% annual inflation compounds over a century — it doesn't show instability.

Federal Reserve

1970s oil shocks (supply-side inflation)

25%

The 1973 OPEC embargo and 1979 Iranian Revolution caused oil prices to quadruple, driving the high inflation of the 1970s. This was supply-driven, not purely monetary.

Federal Reserve History

Fiat money enables monetary expansion

20%

Without the gold constraint, central banks can expand the money supply. This enables inflation, but also provides tools to fight recessions.

Federal Reserve

Post-1980 inflation targeting

15%

Since Volcker, the Fed has maintained inflation near 2%. The 'Great Moderation' (1983-2007) showed fiat money can deliver price stability.

Federal Reserve Bank of St. Louis

Gold standard had deflation crises

10%

The gold standard produced devastating deflationary episodes: 1873-1896 (Long Depression), 1929-1933 (Great Depression). Deflation is arguably worse than moderate inflation.

Bordo & Schwartz (1999)