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America's Only Peacetime Inflation: The 1970s

41 Pages Posted: 11 Jul 2000 Last revised: 26 Sep 2010

J. Bradford DeLong

University of California, Berkeley; Federal Reserve Bank of San Francisco; National Bureau of Economic Research (NBER)

Date Written: May 1996

Abstract

The 1970s were America's only peacetime inflation, as uncertainty about prices made every business decision a speculation on monetary policy. In magnitude, the total rise in the price level from the spurt in inflation to the five-to-ten percent per year range in the 1970s was as large as the jumps in prices from the major wars of this century. The truest cause of the 1970s inflation was the shadow of the Great Depression. The memory left by the Depression predisposed the left and center to think that any unemployment was too much, and eliminated any mandate the Federal Reserve might have had for controlling inflation by risking unemployment. The Federal Reserve gained, or regained, its mandate to control inflation at the risk of unemployment during the 1970s as discontent built over that decade's inflation. It is hard to see how the Federal Reserve could have acquired such a mandate without an unpleasant lesson like the inflation of the 1970s. Thus the memory of the Great Depression meant that the U.S. was highly likely to suffer an inflation like the 1970s in the post-World War II period รพ maybe not as long, and maybe not in that particular decade, but nevertheless an inflation of recognizably the same genus.

Suggested Citation

DeLong, J. Bradford, America's Only Peacetime Inflation: The 1970s (May 1996). NBER Working Paper No. h0084. Available at SSRN: https://ssrn.com/abstract=225048

James DeLong (Contact Author)

University of California, Berkeley ( email )

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Federal Reserve Bank of San Francisco

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