& Inflation, 1960 - 1994
Each bar in the graph represents an annualized rate of growth over
the indicated five-year period. The green bars show the growth in
the M1 money supply relative to the growth in the real GDP. The
bars show the growth in the consumer price index.
As can be seen, the average inflation rate grew through
the 1960s and
1970s, then dropped steadily thereafter. The rate of growth of
M1 money supply increased more or less steadily throughout the whole
During the period when the inflation rate was growing, the money supply
growth rate lagged significantly. By the 1990s, the inflation
had dropped to its lowest level in 30 years, while the money growth
reached its highest level, and in fact exceeded the inflation rate.
M1 represents transaction money, consisting of checking
cash held by the public. One must conclude that whatever the
of inflation during this whole period, an excessive growth rate in the
M1 money supply had little or nothing to do with it.