Saturday Morning Muse
Host: Dr. Andrew Temte, CFA
Episode: Understanding Inflation: When Money Loses its Power
Date: August 16, 2025

Episode Overview

In this episode, Dr. Andrew Temte provides a concise yet deep dive into the concept of inflation, tracing its historical roots, key drivers, and personal impacts on purchasing power. Through vivid historical examples and engaging storytelling, Dr. Temte explores how both inflation and its opposite, deflation, can upend economies and everyday life, and imparts practical lessons for navigating today’s financial environment.

Key Themes & Discussion Points

1. The Evolution of Money and the Persistent Challenge of Inflation

• Historical note: July’s episode covered the Bank of England’s creation of the first government-backed banknotes in 1694.
• Problem persists: Even advanced monetary systems cannot escape the challenge of inflation.
• Quote [00:59]:

  “As we'll see today, even the most sophisticated monetary systems face a persistent challenge that has haunted economies for centuries: inflation.”
  — Dr. Andrew Temte

2. Understanding Inflation and its Effects

• Definition [02:05]:

  “Inflation is a sustained increase in the general price level of goods and services in an economy over time. Notice the word sustained.”

• Purchasing power:
  • “When inflation occurs, each dollar in your wallet loses purchasing power.” [02:32]
  • Example: If inflation is 3%, something costing $100 will cost $103 the following year.
• Winners and losers:
  • Salary that grows faster than inflation can improve purchasing power; fixed incomes lose ground.
  • “If you’re on a fixed pension that doesn’t adjust for inflation, then you’re falling behind every year.” [03:05]

3. Four Main Causes of Inflation

a) Demand-Pull Inflation [03:50]

• Happens when demand exceeds supply (e.g., concert ticket rush).

• “This can happen economy-wide when consumers have more money to spend than there are goods available.”

b) Cost-Push Inflation [04:28]

• Triggered by increased costs of production (oil price spikes, tariffs).
• Refers to 1970s OPEC oil crisis.

• “Companies then pass these increased costs onto consumers through higher prices.”

c) Monetary Inflation [05:25]

• Occurs when money supply grows faster than goods/services.
• Modern analogue of coin debasement.

• “When central banks create too much new money relative to the goods and services produced, each unit of money becomes worth less.”

d) Built-in / Expectational Inflation [05:56]

• Wages and prices spiral as people expect ongoing inflation.

• “When people expect prices to rise, they demand higher wages. Businesses then raise prices to cover higher labor costs, validating the original expectation and perpetuating the cycle.”
  [06:03]

• Example: 1970s US wage contracts with automatic cost-of-living adjustments.

4. Monetary Policy Gone Wrong: The Great Recoinage of 1696

• Deflation:
  Explains the flip side—deflation, when money becomes more valuable and prices fall.
• England’s crisis:
  Silver coins debased by “clipping” and counterfeiting led to uncertainty.
• Solution attempt:
  • All old coins recalled; new coins with milled edges to combat clipping.
  • Poor execution led to panic, currency shortages, and economic contraction.
  • “The mints in England couldn't produce new coins fast enough… The result was a severe shortage of circulating currency, just as England was fighting an expensive war against France.” [08:40]
• Consequences:
  • Money supply plummeted from ~£26 million to under £17 million in six months.
  • Reliance on credit and remaining gold coins.
  • Severe deflation, unemployment, poverty, unrest, and a run on the Bank of England.
  • “This episode demonstrates how even sound economic reasoning can lead to disastrous outcomes when implementation is poorly managed.” [10:11]

5. Lasting Lessons and Today’s Relevance

• Lesson:
  • “Monetary policy decisions do have these far reaching consequences that policymakers don’t always anticipate.” [11:10]
  • Simple, quick-fix solutions rarely work for monetary crises—solutions require multiple, coordinated approaches.
• Modern parallels:
  • Supply chain disruptions → cost-push inflation.
  • Government spending → demand-pull inflation.
  • Central bank actions → monetary inflation.
  • Expectational inflation remains potent.
• Quote [13:18]:

  “Monetary crises rarely have simple solutions. And boy, do politicians like to come up with really simple quick fix solutions.”

Notable Quotes & Memorable Moments

• On money’s power to lose value [01:20]:

  “Whether it’s a Roman emperor diluting silver content or a modern central bank increasing the money supply, the fundamental dynamic is the same. More money chasing the same amount of goods and services drives prices higher.”

• On historical context [07:33]:

  “King William III’s government, advised by philosopher John Locke and scientist Isaac Newton, decided on a radical solution.”

• On policy complexity [13:47]:

  “The Great Recoinage crisis ultimately ended not through any single policy success, but through the conclusion of the Nine Years War, the expansion of credit systems… and England’s gradual transition toward a gold standard.”

Actionable Insights for Listeners

• Personal finance tip:

  “Understanding inflation empowers you to protect your purchasing power through smart saving, investing, and career decisions.” [14:31]

• Adjust strategies for inflation by:
  • Choosing inflation-protected investments.
  • Negotiating salaries aligned with inflation trends.

Key Timestamps

• [00:59] – Introduction to inflation’s persistent economic challenge
• [02:05] – Definition and effect of inflation on purchasing power
• [03:50] – Demand-pull inflation explained
• [04:28] – Cost-push inflation and the 1970s oil crisis
• [05:25] – The modern analogy: monetary inflation
• [05:56] – Expectation-driven inflation cycles
• [07:33] – The Great Recoinage of 1696: Deflation and its consequences
• [11:10] – Lessons for policymakers and individuals today
• [13:18] – The complexity of solving monetary crises
• [14:31] – Empowering listeners to make better financial decisions

Tone & Language

Dr. Temte employs clear, approachable language with historical anecdotes and real-world analogies, always focused on empowering the listener with practical financial literacy. His tone is both educational and motivational, urging caution and careful consideration in both personal decisions and public policy.

Final Thought

“Most importantly, remember that monetary stability depends on both sound policy and public confidence... The complexity of monetary systems typically requires careful gradual changes rather than dramatic big bang overhauls.”
— Dr. Andrew Temte [15:06]