Basic HTML Version
A
Short
l-lstory
of
THE
RAVAGES
OF
INFIATION
l
nftation is a problem almost as
old as rnankind. The Sumerian
civilization of sorne 5.000 years
ago seems to have sutfered from a
form of it. So apparently did an–
cient Babylon. The fifth dynasty in
Egypt (about 2,300 B.C.) and the
China of Confucius seern to have
had a problem with inftation. So
did the Israelites. for the prophet
Haggai noted: "You have sown
much. but reaped liule. . . . The
labourer puts bis wages into a
purse with a hole in it" (Haggai
1:5-6. NEB).
There was inftation in ancient
G
reece and Rome. Alexander thc
G reat's conquest of half the known
world brought in its wake
a
cata–
strophic rise in prices. Nero delib–
erately debased the Roman
coinage.
England's Henry Vlll started an
inftation which
bis
daughrer Eliza–
beth
1
had to overcome.
By November 1777, commodity
prices in North America had risen
480% above the prewar average.
The French Revolution carne to
grief after an eruption of rising
prices. And in Germany after
World War
1
the ratio of prewar
to postwar price s wa s 1 to
1,800.000.
It
seems that each civilization.
each age, and each political system
has had to learn its own lessons.
The story of Lagash is particu–
larly illuminating. Prof. S. N. Kra–
mer records that after a period of
inftation, there carne to power the
world's first known political and
economic reformer - Urukagina
of Lagash. He reformed both the
criminal and the economic law,
protecting the citizens of Lagash
from the abuses of wealthy land–
owners and tax collectors. We do
not know quite how he did it. but
The
PLAIN TRUTH December 1976
he seems to have succeeded in dis–
pensing with tax collectors alto–
gether!
About 4,000 years ago in Baby–
Ion. the Code of Hammurabi was
imposed, in part to control certain
wages and priccs. According to
Robert L. Schueuingcr. in a study
of econornic controls over the past
5,000 years. the etfect was the op–
posi te of that which greeted
Urukagina's reforms. In Babylon
these price controls reportedly
"srnothered economic progress for
centuries.' '
There were many cases of in–
ftation caused by the debasement
of the coinage. Ncro debased the
coinage of Rome to pay for bis
excesses, even to the extent of is–
suing plated coins. Traders began
to refuse payrnent in coin. and the
concept of money itself was in
sorne danger ofbreaking down.
Many years later, in A.D. 301 .
there was again a sudden rise in
prices throughout the Rornan Ero–
pire. Ernperor Diocletian claimed
it was all due to "greed," "ex–
tortion,' ' and ' 'lust for prívate
gain." So he issued a farnous edict
fixing the prices of virtually every–
thing that could be bought and
sold - sorne 750 iterns aU told.
Wages were also fixed. The pen–
alty for selling goods above the
fixed price was the same as that for.
accepting a higher wage - death.
Diocletian rneanwhile also de–
based the coinage by shaving the
edges off his gold and silver coins.
Inftation skyrocketed. "There was
much blood shed upon very slight
and trifting accounts," reported
historian Lactantius in A.D. 314.
Eogland's great "Elizabethan
Age' ' began with a currency re–
forro following the issue of more
and more bad money by Eliza–
beth's predecessors, notably her
father Henry VIII. Elizabeth was
advised by Sir Thomas Gresham
who pronounced the famous Gre–
sham's Law: Bad money drivcs out
good.
But the first truly modern in–
ftation was probably that brought
about in France by the financia1
wizard John Law, following the
death of Louis XIV in 1715. He
much impressed the regent with
bis plan to restore the finances of
France through the issue of paper
money. the formation of a national
bank, and the use of an entirely
new device: "credit."
Great fortunes were made al–
most overnight. A rudimentary
stock rnarket was set up in the Rue
Quincampoix in París. Valets,
waiters, and coachmen joined the
"nouveau riche" set. The new na–
tional bank churned out money in
vast quantities which it lent out at
1% or 2% interes t. The con–
sequence was an instant roaring
inftation. In two years the prices of
bread, rnilk, and rneat rose sev–
enfold.
In an etfort lo give credibi1ity to
its paper rnoney. the govemrnent
made gold illegal. Police were ern–
powered to search every house for
it. Prices of all products were con–
trolled. Finally the edict of July
1721 confiscated up to
90%
of the
wealth of all persons who had
been poor two years earlier and
now were reckoned to possess
"riches above their condition."
This tyranny almost 1ed to a re–
hearsal for the French Revolution.
And the irony of this is that when
the revolution carne, it ended in
yet another inftatiooary period.
History seerns thus to teach the
lesson that whenever a currency is
debased, the " bad rnoney drives
out the good," whether the issue of
too much rnoney is caused by a
ruler's greed, by war, by famine, or
by a governrnent's good in–
tentions; and that unless such a
currency is first reformed, the use
of governrnent controls on their
own brings tyranny. However, his–
tory also provides many examples
of success when the issue of money
was first brought back into bal–
ance, from Lagash's Urukagina to
Elizabeth
1
of England.
- John Allan May
Mr. May was for many years
chief correspondent in London
for
The Christian Science Moni–
tor.
Currently he is finance
columnist for
Ideal Home
maga–
zine.
17