Inflation—What’s Behind It?
YOU go to your favorite café and order a cup of coffee at an already inflated price. But when you go to the cashier you are informed that in the time it took you to drink it, the price has nearly doubled. Impossible? No, for people in Germany during the 1920’s had this very experience—a chilling example of how inflation can accelerate.
Your experience with inflation may not be quite so drastic. Nevertheless, Argentina has experienced an inflation rate of 500 percent and is one of several countries suffering from disastrous, rapid inflation. Nevertheless, students of the Bible are not surprised at this development, since Revelation 6:6 told of a time when a day’s wage would buy a mere “quart of wheat.”
Like most of us, however, you may be confused as to who (or what) is to blame for inflation. So let’s ask the “experts”! Imagine a courtroom gathering of businessmen, politicians and economists. You have the solemn privilege of presiding over the proceedings.
Down comes the gavel as you commandingly say: “Order in the court! The world economy is near death and one of you is to blame! Who would first like to defend himself?”
“If it pleases the court,” says an economist, “I would like to try to shed some light on what has taken place. Inflation,” says he, “is a simple result of the law of supply-and-demand. When the banks extend a lot of credit, the money supply grows. Now, the more money people have, the more they can demand goods. The more goods are in demand, the more they cost. It’s really quite simple.”
“Don’t go putting the blame on us bankers,” objects a man in a business suit. “If we didn’t extend credit, the whole economy would lapse into a recession. Without credit, people can’t buy houses, cars or even household appliances. Business and industries suffer. The stock market sags as investors pull their money out. Now, I admit we have at times got a bit carried away extending credit. But it was OPEC who gave us all that money in the first place. And they’re the ones who drove prices sky-high with that embargo of theirs. (There are murmurings of agreement.) But the real culprits are the politicians.” Before the angered statesman can utter a word, the banker cuts him off, saying, “Yes, you’re the ones spending all that money on your pet government programs. Why, because you fellows do so much spending, there’s greater demand for goods. So prices naturally go up!”
“Now that’s all I’m going to take,” says a politician. “First of all, it is the military establishment that is always demanding more money for those ‘toys’ of theirs, even though there are already enough bombs to blow up the world several times over! And I remind you that you bankers are the ones that cry when interest rates are raised to control inflation.”
“But all that has accomplished is to plunge the world into a recession,” the economist says. “Besides, prices almost never come down once they go up. Several times the cost of raw materials went down. And what did some industrialists do? Instead of passing on the savings to the consumer, they invested their money in more advertising to try to increase consumption of their products!”
An industrialist is red-faced. “Now, just a minute,” he says. “How can we lower prices when labor is constantly demanding higher wages? Sometimes the labor unions have demanded a raise in anticipation of inflation—before it even happens! What can we do but raise prices? Besides, we keep people employed. So what if our growth leads to inflation?”
With this remark the room erupts into chaos, broken only by the slam of your gavel. “Now I’ve heard enough of your excuses,” you say. “I may not be an economist, but it’s plain to me that all of you have had a part in this. All have contributed to this dreadful situation. I therefore sentence you . . .”
But your gavel is frozen by a sudden realization on your part. You think about all those credit cards in your pocket and how you’ve overused them. You think of the things you purchased out of excessive want—not need—and a fear that prices would go up. Your confidence as a judge wanes, and with head bowed low you join the ranks of the guilty.
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Some of the Causes of Inflation
● Excessive Credit
● Government Spending
● Military Expenditures
● High Wage Demands
● OPEC’s Oil Embargo
● High Interest Rates
● Floating Rates of Exchange in International Money Market
● Unprecedented Consumer Demand