What Really Causes Inflation?

We have enough recent history under our belt at this point to make a good guess.

James T. Moodey | July 29, 2026

The fact that inflation is not necessarily caused by the money supply was proven in the 1970s, and economists did not notice.  It was proven again during President Obama’s tenure.

Milton Friedman is my idol.  However, if he said, “Inflation is always a monetary phenomenon,” that is a white lie.  Read on to learn why he would have said that.

I graduated in 1973 with my economics degree and began crunching numbers on any problem that I saw.  In 1974, the first oil crisis occurred.  People awoke in a panic that they needed gas and would be late for work.  Many gas stations had only one pump running, and there were lines of cars.  People were standing by their cars spewing blame.

I thought, “OK, fellow economists — explain what is causing this.”  Not a single economist here or in Europe explained the cause.  They were silent in the second crisis as well.  So I started a file and began to study the oil crisis and the ensuing inflation.

In 1970, a delivered barrel of oil cost a low of $1.20.  By 1980, as a direct result of three enormous tax increases, it cost about $37 per barrel.  In 1970, a bulldozer struck a large pipeline in the Saudi peninsula.  The pipeline was shut down for about two weeks.  The spot market price of oil shot up $6 to about $8 before it went back down.  Moammar Gaddafi remembered that, and when a shortage occurred in 1974, he called Armand Hammer of Occidental Petroleum.  He told him he was adding a $6 tax to Occidental’s oil.  OPEC followed Gaddafi’s lead.  When the second crisis occurred in 1978, OPEC added an $8 tax, and oil settled at about $13 per........

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