Inflation: 'Destroying governments since 1789'

One of the best books about inflation is The Great Wave, by David Hackett Fischer. I read it with admiration when it was first published in 1996 and I have been re-reading it now inflation is back.I have experienced only too much of the recent history of inflation over the past 60 years.For most of that time I've been reporting on it as a financial journalist. I share Fischer's belief that the best way to study inflation is to study its history. Theoretical economic models do not tell the whole story.

Karl Marx analysed the French Revolution, primarily in terms of class conflict. Yet inflation was a potent revolutionary influence. As Fischer writes: 'From 1789-99 every twist and turn of fortune in the French Revolution was closely tied to movement of prices.'

The French Revolution is usually thought to have begun on July 14, 1789, the day the Paris mob stormed the Bastille. Fischer provides a graph that shows July 14 was also the day on which bread prices peaked in Paris.

Inflation destroyed King Louis XVI, the constitutional monarchy, the Jacobin dictatorship and the Directorate. It brought Napoleon to power, just as the German inflation of the Twenties helped to bring Hitler to power in 1933.

In Britain today the extraordinary swing against Gordon Brown's Government has happened as the price of energy and food are rising and the price of houses falling.

There are parallels between the present inflationary situation and the great inflation that started in the mid-Sixties and ended in the mid-Nineties.

In the Sixties, America was pouring troops and money into Vietnam. When President John F. Kennedy was assassinated, there were only a few thousand Americans in Vietnam. By the time President Lyndon B. Johnson retired in January 1969, there were about 500,000.

President Johnson is praised for his expansion of the American services. Yet he expanded social expenditure and fought a war in South-East Asia without raising taxes to pay for them.

In the past seven years, President George W. Bush has fought wars in Iraq and Afghanistan while cutting taxes. Both wartime presidents have financed their wars by borrowing.

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