Piercing the veil of monetarism: a decomposition of American inflation, 1970–1985

ABSTRACT Over the course of the 1970s, inflation became a monetary phenomenon. At the beginning of the decade, price increases were attributed to a complex intersection of domestic and international forces. By the end of the decade, inflation was widely seen as a consequence of misguided government policy. What began as a partisan battle cry became a social scientific premise: the history of inflation in the 1970s in the United States is told by the political victors. This article recovers a set of facts buried beneath decades of ideological sedimentation. Through a decomposition of the statistical index of inflation, this article demonstrates that price increases in the 1970s were driven by a confluence of contingent events propagating through politically constructed markets. Sharp increases in the prices of tradeable global commodities combined with unprecedented interest rate hikes to send the Consumer Price Index to new highs. Through these component histories, the article demonstrates how the aggregate phenomenon of ‘inflation’ and its subsequent remission after 1982 marked the confluence of otherwise unrelated disruptions rather than ‘too much money chasing too few goods’ decisively upended by the Volcker shock.