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.Hyperinflation can also occur withoutwar; currencies melt down for other reasons.But, historically,wars have caused the worst cases.German hyperinflation afterWorld War I was epitomized by the image of a person pushinga wheelbarrow of cash to buy a loaf of bread.Historian CarrollQuigley said that at the outset of World War I, military leadersin Europe expected a six-month war: Financial experts.while greatly underestimating the cost of fighting, were confident that the financial resources of all states would be exhausted in six months. But instead of this depletion endingthe war, it simply made the belligerents break from the goldstandard and, in effect, tax their national economies throughinflation, according to historian Earl Hamilton.4The expense of World War I did not take everyone by surprise.Writer Jean de Bloch in 1899 argued that the rising costsof war made fighting one an economic impossibility thatwould result in suicide if attempted.Author Norman Angell, who later won the Nobel Peace Prize in 1933, said muchthe same right up to 1914.5 Both writers thought the disastrous economic consequences would prevent a Great War fromtaking place, but the war happened anyway.Wars are notabout making money, they are about spending money downto the last dime and beyond, if that s what it takes.Becausegovernments cannot afford to stop spending money inwartime even when they run out of money wars produceinflation.U.S.history shows a pattern of inflation during and after bigwars, but at far lower levels than in cases like Angola s.Duringthe U.S.Civil War, both North and South but especially theSouth, with its more limited ability to borrow turned toprinting paper money in ever greater amounts.The South suffered from paying more than half its bills with paper money, 79Inflationaccording to John Steele Gordon: The effect of this flood ofprinting-press money on the Southern economy was catastrophic, with 700 percent inflation over the first two years ofthe war.Meanwhile, inflation totaled 75 percent over fouryears in the North, driving down real wages (adjusted for purchasing power) by 20 percent, according to historian RogerRansom.Union-issued greenbacks were legal tender butwere not accepted even by the government for payment oftaxes, Gordon notes.Just as in 2002 the stock market fell orrose on the likelihood of a war in Iraq, during the Civil War the value of the greenback in terms of gold gyrated in response to Union victories and defeats. (After the war, cheapmoney like the greenback was retained, partly because its inflationary qualities helped debtors.But creditors returned thecountry to the gold standard by 1879.)6We have government statistics on prices since World War I.The government s Bureau of Labor Statistics creates the urbanConsumer Price Index the most commonly used measure ofinflation.You can use the bureau s inflation calculator on theWeb at http://data.bls.gov/cgi-bin/cpicalc.pl to see what moneyfrom an earlier year is worth in today s dollars.Using this inflation calculator, you can see that the dollar was worth $18.19,in today s terms, in 1915, when Woodrow Wilson was appealing for tax increases for an American military buildup early inWorld War I.But in 1920, two years after the war ended, thedollar was worth $9.18 a loss of half the dollar s value in fiveyears.The money in your pocket that had bought you twoloaves of bread in 1915 got you only one loaf in 1920.Betweenthe world wars, from 1920 to 1941, the dollar s value rose($9.18 to $12.50).But that 1941 dollar, worth $12.50 in today s(2003) money, became a 1947 dollar worth only $8.24.Thus insix years, during and after World War II, the dollar lost one-third of its value. 80InflationAfter World War II, the U.S.economy never fully returnedto peacetime.The Cold War years kept the economy partiallyin war mode all the time, making low-level inflation a way oflife.Still, after a spike of inflation (8 percent) in 1951 duringthe Korean War, the inflation rate was below 2 percent intwelve of the next fourteen years.The Vietnam War drove annual inflation up to 3 percent in 1966 and 1967, then 4 to 5 per-cent from 1966 to 1971.Ever since, inflation rates have been driven by world oilprices, in turn driven by wars and revolutions in the MiddleEast that affect the prospects for stable future oil exports fromthat region.Inflation spiked at about 10 percent in 1974 afterthe Arab oil embargo and Yom Kippur War in late 1973, andagain from 1979 to 1981 after the revolution in Iran replacedthe U.S.-backed government with an Islamic republic.The inflation rate dropped back from these peaks as world oil pricesfell during the 1980s.Overall, the U.S.inflation rate was be-tween 3 and 5 percent in sixteen of the twenty-six years from1966 to 1991
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