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insisted that inflation was the country’s number one problem. After his election, he enlisted his Council of Economic Advisors to identify those adversely impacted by inflation. According to the council’s chairman, Herbert Stein, “If anyone was being severely hurt, the available statistics were too crude to reveal it.” 22
    Of course, Dr. Stein understood as well as anybody what David Ricardo, the most important economist of the early nineteenth century, wrote about the harm of inflation:
The depreciation of the circulating medium (meaning inflation) has been more injurious to monied men … It may be laid down as a principle of universal application, that every man injured or benefited by the variation of the value of the circulating medium in proportion as his property consists of money. 23
     
    As later research has shown, a modest level of inflation is beneficial for the economy because it allows business more flexibility in dealing with workers. Employees are resentful when business demands wagecuts. Inflation allows business a back door for reducing wages—at least what wages can buy. In this way, management can alter the wage structure, rewarding some workers, with higher wages while letting the real wages of less-favored workers erode. 24 In addition, a number of studies indicate that inflation does no damage to the middle or lower classes as a whole. Although inflation does harm those on fixed incomes, inflation (within limits) is associated with higher economic growth, bringing more prosperity, especially to unskilled workers. Inflation, however, does have a detrimental effect on the rich, because it erodes the value of their financial assets. 25
    Creating Unemployment
     
    Economist Edwin Dickens has written a series of significant articles analyzing the minutes of the meetings of the Open Market Committee of the Federal Reserve Board, dating back to the 1950s. Dickens’s research shows convincingly that the Federal Reserve’s partisan behavior is designed to tilt the economy in the direction of the wealthy by making workers more compliant. Dickens reported numerous occasions when participants voted to tighten the money supply just before major union contracts were about to expire. The minutes indicate that the specific intent was to force employers to be less generous with their wage offers during contract negotiations. 26
    A recent study formalized Dickens’s work by attempting to distinguish whether the policy actions of the Federal Reserve were a response to inflation or to low unemployment. The study concluded that “a baseless fear of full employment” rather than the prevention of inflation was the guiding principle of the Federal Reserve. 27 The conclusion of this study should come as little surprise to people familiar with the Federal Reserve’s obsession with the danger of high wages.
    Defenders of such policies justify the temporary restriction of job creation, contending that the Federal Reserve is merely trying to curb excessive growth. According to this school of thought, the Federal Reserve is simply preventing the kind of excesses that lead to severerecessions or depressions. Slowing down growth today may be necessary to provide for a higher, sustainable growth rate in the future. Most economists argue that the cumulative effect of even a fairly small increase in growth rate can be substantial, more than enough to compensate for a temporary slowdown.
    The periodic slowdowns that the Federal Reserve engineered to undermine wage growth are unlikely to stimulate economic growth. According to a study by the Bank for International Settlements, slowdowns actually seem to diminish rather than promote long-term growth. 28 Over and above the dramatic effects of intentionally engineered slowdowns, the more steady effort to keep wages in check also probably reduces the rate of growth. As economists continually warn, the cumulative effect of a reduced rate of economic growth can be substantial.