Why didn’t USA experience huge inflation after giving USSR huge aid during WW2 and aiding Western Europe through Marshall Plan?

642 views

Why didn’t USA experience huge inflation after giving USSR huge aid during WW2 and aiding Western Europe through Marshall Plan?

In: Other

4 Answers

Anonymous 0 Comments

Inflation happens when a country increases, not just the amount, but the *concentration,* of currency in their national circulation. If a country multiplies the circulating currency within its borders by ten, it will become ten times less valuable, but if all that money goes somewhere else it’s less of a concern. There’s more money, but it’s also circulating among more people.

In addition, the US benefits from the fact that the international oil trade is denominated entirely in dollars. We give dollars in return for oil, but the dollars can only really be spent with us as well, or at least with other nations who accept trade in dollars. So we effectively have a giant scam going where we exchange oil directly for something they have to give back to us in return for something worth less than both the oil they sold *and* the dollars we gave them, as every stage of the process involves profit extraction. Essentially, we profit twice from every sale of oil: first when we buy oil for less than we expect to produce economically from its consumption, and second when the dollars we gave them are given back in return for less labor or goods than those dollars cost us to produce.

As a result, US dollars have a lot of wiggle room before they become devalued. If you have a lot of dollars, you just buy a lot of American goods, or oil, with them, and buying oil is effectively equivalent to buying American goods anyway. You can pump more dollars into the economy without causing a problem as a result, because demand for dollars will always be high regardless of supply.

You are viewing 1 out of 4 answers, click here to view all answers.