Ever since central banks came online, people feel the burden of rising prices.
But it is an open question as to whether prices rise as a natural course of economic activity, or whether price inflation is a synthetic aberration rooted in fiat monetary systems. Check out the wholesale prices of things before the USA got a central bank:
Producer (wholesale) Prices without a Central Bank
The shark fin in the middle is the result of the Civil War, so the first thing to glean is that war causes inflation. But even more importantly, the general trend of prices goes down. This is because the economic freedom of capitalism brings more things into reach for the common person (living standards become more affordable over time).
The index is set so that the average of 1910-1914 prices comes out to “100” — but that date range includes two years (1913 & 1914) when we had a central bank (the Federal Reserve). From a price index of 84 in 1850 — which means prices were 84% as high then as in 1910-1914 — the 1894 price index had dropped by 14 units to just 70:
A rough test can be performed on the hypothesis that inflation is part of the natural course of things, by setting the annual chance of inflation to 51% — and putting the annual chance of an equal amount of deflation to 49%. When you do that, the yearly chance of deflation is 96% as high as the chance of inflation.
Of the 44 years of price change, if you had equal years with 1 unit of inflation as you did with 1 unit of deflation (22 years of each), then the price change is zero for those 44 years.
Having just 1 year of inflation and 43 years of deflation drops the price by 42 units.
To get the price to drop by at least 14 units requires at least 29 deflations (along with 15 inflations of equal size):
But the probability of that is under 2%, indicating that price inflation does not naturally occur in economic systems which do not have central banks.
Even more staggering are the price drops in wheat (over 87 years) and silver (over 100 years) in Great Britain:
Wheat Price without a Central Bank
Silver Price without a Central Bank
If the crude “binomial distribution test” used on producer prices in the USA were also applied to these wheat and silver prices, each decrease across a time span of more than 8 decades, then the chance of “natural inflation” would be found to be even lower.
Historical evidence indicates that free enterprise makes a living standard more affordable (“a rising tide lifts all boats”), but that central banks make a living standard less affordable.
ve read a theory. [By around 1920, especially in the United States, automobiles, railroads, and agricultural machinery had become widespread, greatly improving agricultural productivity and transportability. As a result, the price of grain has fallen, but on the other hand, no matter how cheap the grain is, the amount humans eat does not increase. This led to a fall in grain prices, which spread to other sectors and led to the Great Depression of 1929. ]. This may be natural since historically, agriculture and the transportation of products were carried out using human power and cows and horses. In short, the supply capacity, which had never existed before then, rapidly became excessive, and the balance between supply and demand collapsed.
At the time, the U.S. central bank lowered interest rates, and the government sought to support the economy with public works projects such as the Hoover Dam.
In modern times, if nuclear fusion were to be realized on a large scale, energy costs would become extremely low and it would have a major impact on the economy, but this is still a long way off. What do you all think?