Date of Award
Business, Accounting & Economics
A period in which prices in general are rising is spoken of as a period of inflation. Conversely, the term deflation applies to a period in which the prices in general are falling. A key to an understanding of the effects of inflation and deflation is in terms of the purchasing power of the dollar. In other words, one must realize that a dollar is only worth what it will buy. It follows from this that a dollar in on period can be compared with dollar in a different period only if there has been no significant change in the general level of prices (for a change in the general price level necessitates a change in the purchasing power of the dollar). If such a change has occurred, a comparison of the two periods can be made on equal basis only if the change is somehow taken into account. We are in the habit of thinking of a dollar as a dollar regardless of when it was received or spend, although available facts show that there are weaknesses in this assumption.
Although inflation in the United States may be said to have begun in earnest about 1915 during the First World War, we have had five period of important price fluctuations since 1775. Each of these periods had occurred during or following a major war. Between 1774 and 1779 (Revolutionary War), wholesale prices rose almost threefold. Between 1811 and 1814 (War of 1812), wholesale prices rose about 50%. The Civil War (1861-65) saw wholesale prices slightly doubled. The wholesale price index more than doubled in the periods 1915-12 (World War I) and again in 1940-51 (World War II).
White, James, "Price Level Changes And Financial Statements" (1964). Business, Accounting and Economics Undergraduate Theses. 42.