“During the Second World War, American monetary policy was dedicated to providing cheap credit to the federal government. This policy resulted upward pressure on prices and was suppressed by wage and price controls enforced by the Office of Price Administration (1941–47). With the inflation rate spiking upward in 1951, price controls were reinstated under the Office of Price Stabilization (1951–53). To reduce the inflationary pressures from monetary policy, the U. S. Treasury and the Federal Reserve System reached an Accord in 1951 that gave the Fed independence to formulate its own monetary policy, no longer tied to the Treasury‘s borrowing requirements. An annual inflation rate below 1.5 percent was not to be seen again in the two decades following 1965. The inflation rate grew steadily through the 60’s, averaging 8 percent in the 70’s and peaked at 13.6 percent in 1980. In a play on “The Great Depression,” monetary historians have labeled the episode “The Great Inflation.”” Read more.
“The Great Inflation and Monetarism”
Lawrence H. White
Chapter 11 from The Clash of Economic Ideas
Working Papers, Mercatus Center, September 1, 2010.
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