Inflation is the result of an excess in the money supply of a specific system (like a country). As the money supply increases, consumers have more money to spend. As they have more money to spend, retailers and producers find they can charge higher prices for their goods. (If the opposite were to occur, prices falling due to a reduction in the money supply, this would be called deflation.)
The risk for inflation is greater when a fiat currency is used. You cannot simply print gold or other forms of hard money.
In its extreme cases, inflation is also called hyperinflation. An example of hyperinflation would be during the German Weimar Republic of the 1920s. Due to excessive printing of currency (to pay its World War 1 debts) Germans reached the point where it required a wheel-barrel full of money to purchase a loaf of bread, or where you had to pay for your cup of coffee when you received it, because by the time you finished drinking, the price was higher.
A more recent example would be in Zimbabwe where inflation necessitated the need for the 100 trillion dollar bank note.
Edit Speech Relevance
Inflation is a small point from both speeches. In '
A Time For Choosing':
We have $15 billion in gold in our treasury--we don't own an ounce. Foreign dollar claims are $27.3 billion, and we have just had announced that the dollar of 1939 will now purchase 45 cents in its total value.
At the same time, can't we introduce voluntary features that would permit a citizen who can do better on his own to be excused upon presentation of evidence that he had made provisions for the non-earning years? Should we allow a widow with children to work, and not lose the benefits supposedly paid for by her deceased husband? Shouldn't you and I be allowed to declare who our beneficiaries will be under these programs, which we cannot do? I think we are for telling our senior citizens that no one in this country should be denied medical care because of a lack of funds. But I think we are against forcing all citizens, regardless of need, into a compulsory government program, especially when we have such examples, as announced last week, when France admitted that their Medicare program was now bankrupt. They've come to the end of the road.
In addition, was Barry Goldwater so irresponsible when he suggested that our government give up its program of deliberate planned inflation so that when you do get your Social Security pension, a dollar will buy a dollar's worth, and not 45 cents' worth?
Reagan is highlighting how the purchasing power of one's Social Security dollars has been more than cut in half. This was eventually fixed in 1975 when Social Security benefits began to rise with cost-of-living adjustments.
And in '
Encroaching Control':
Through a quiet process of planned inflation, a government can quietly and unobservedly confiscate the wealth of its citizens. Henry VIII did it openly. He substituted copper for silver in the coinage of the day. While our own government has been deliberate and dishonest in its inflationary policies. Your dollar last year lost another two cents in purchasing power. In 20 years, we know, all of use that it's shrunk to less than half its previous value. But we're told that we shouldn't worry because in this inflated market, our earnings have kept pace and we're earning two-for-one. But they forget the part played by that progressive income tax which is based not on the value of the dollar but on the number of dollars you earn. And so when you start earning two-for one to maintain your purchasing power, you find that you have to earn additional dollars, the vicious cycle begins. Additional dollars to pay your increased surtax as you have moved up through successive brackets.
In other words, even if a person's salary keeps up with inflation, they will travel up through the progressive income tax brackets and owe more money to the government.
Edit Source Links
Inflation (Wikipedia)