There was huge inflation during WWI, as the government sold war bonds.
"The World War I era and its aftermath, 1917–1920, then produced sustained inflation unmatched in the nation anytime since. Prices rose at an 18.5-percent annualized rate from December 1916 to June 1920, increasing more than 80 percent during that period."
>>"There was huge inflation during WWI, as the government sold war bonds."
I'm not sure of what you are saying there, but it can be interpreted like war bonds is the cause of inflation.
It's exactly the opposite. At war, a government have to use all the available resources for the war effort. That will produce inflation, because the war spending is competing with the private spending for the same resources.
A way to avoid it, is for the government to retire money from the private sector. A way to retire money from the private sector is to sell war bonds to the population. If you buy a war bond, basically what you are doing is promising that you will not spend your money until after the end of the war. Normally you will get some interest for your patriotic sacrifice.
Also, for the gold standard fans out there, imagine what would happen if a government can not mobilize all the available resources of the country because it has not enough gold. That would be the most ridiculous way to loss a war.
Also during the Civil War I think. I was just listening to a podcast and they were talking about this. I think it took a couple of decades to get back to the gold standard after.
There’s no connection between falling prices and depression. At least that’s what Milton Friedman concluded in A Monetary History of the United States, even though he initially assumed there would be.
Well, Friedman says inflation is driven by the money supply, which is partly true. But it's also true that a shrinking money supply is associated with both deflation and recession/depression.
