GOOD NEWS ON INFLATION FRONT HAS PROFOUND MEANING FOR ALL

There is no subtler, nor surer, means of overturning the existing basis of society than to debauch the currency. The process engages all hidden forces of economic law on the side of destruction, and does it in a manner that no man in a million is able to diagnose.

John Maynard Keynes, the internationally renowned British economist, writing in his book "The Economic Consequences of the Peace", published in 1920.

We Americans have gotten so used to inflation in the 25 or so years since the mid-'60s that we seem to have lost sight of the profound truth capsulized in Lord Keynes's words.

History shows that periods of high and escalating inflation are exceedingly dangerous especially to freedom and to self-government. After the First World War, Germany experienced one of the worst outbreaks of hyperinflation that any advanced, modern industrial society has ever seen. People hauled nearly worthless paper money to the shops in bushel baskets and wheel barrows to purchase what little the shopkeepers were willing to part with for it. Prices escalated wildly, day by day and even by the hour. So great was the resultant social dislocation, so awful the misery of all Germans during this period, that the Great Inflation of the 1920s helped pave the way for the rise of demagogues such as Adolf Hitler and his Nazi Party.

The maintenance of a steady and reliable standard of value in money is among the first and most solemn obligations of any government. When governments violate that sacred trust, they not only lie to their own people; they actually encourage their own citizens to lie to each other.

Consider the fact that credit is an indispensable part of all modern economies; no advanced civilization can function without it. All progress in the world of private business, like the building of roads, bridges, sewers and other infrastructure in the public sector, depends upon access to credit at fair, honest and reasonable terms.

But if governments are irresponsibly inflating the currency by printing too much of it, all the normal relations between lender and creditor are ruined. The lender, aware that his borrower will pay him back in cheaper dollars, is forced to demand a higher "price" (rate of interest) for the money he lends today. With more inflation, interest rates rise higher, then higher, until the whole house of cards collapses.

We in America experienced something like this with the Great Inflation of the 1970s a catastrophic period for this country. Those back-to-back years of hyperinflation saw interest rates peak out at 21.5 percent, the highest since the Civil War. Businesses such as homebuilding and autos went into the tank. You can't sell cars or build homes at those unbelievable interest rates. Young people can never get out of debt paying them. It is no accident that that hyperinflation was followed by widespread misery in the sharpest and deepest economic crisis since the Great Depression: the deep recession of 1981-'82.

All of which is prologue to today's good economic news: We are today closer to defeating inflation than we have been in a quarter of a century. That is why interest rates have fallen to levels that many thought we would never see again.

Many Americans, including many expert economists and financiers, thought we would never again see home mortgage rates below 8 percent, or a prime rate of interest at today's rate of 6.5 percent. The very fact that so many thought we would never again see such low rates is evidence of how accustomed we had become dangerously, insidiously accustomed to a government that lied to us as it inflated a currency that was steadily, inexorably losing its value year after year after year, in good times and in bad.

In 1991 the overall consumer price index grew at a rate of only 2.9 percent, compared with 6.4 percent in 1990. Writing in the current issue of the St. Louis Business Journal, Joel Siegel addresses the meaning of what many economists see as our hard-won, years-long victory in the war against inflation. Siegel quotes Washington University economist Lawrence Meyer, who says, "The 1990s will be a period of moderate inflation and relative price stability, much like the early '60s. Inflation should be in the range of 3 percent annually.

"... We should not experience the `supply shocks' of the '70s. ... In fact, absorbing a glut of oil will be a problem in the 1990s, keeping a lid on energy prices. In addition, despite lowering interest rates to get our economy moving again, the Fed is committed to holding the line on inflation and will put on the brakes if prices increase too rapidly."

Columnist Siegel acknowledges what we all must that, "there are signs that inflation may not be dead." But recent progress on this front gives much reason for hope. The fact that government is determined to wring inflation out of our system to end this form of government-sponsored lying about something as fundamental as the currency is profoundly positive for us all. If successful, we can look forward to years of non-inflationary growth, sound growth, real growth not the inflated, "paper" growth of the person who, encouraged by government-caused inflation, bets on his government to ruin that crucial store of value called the nation's currency.