The demand increases and supply decreases bring about price (and wage) increases for virtually all goods and services, except for money itself. As market participants become aware of the diminishing "purchasing power" of money, they attach still less marginal utility to it, generating the spiral. At the same time, they come to expect additional price increases and further depreciation of the currency in the future; this expectation also decreases the utility of money on their value scales, accelerating the spiral.

Policy-makers can attempt to control the spiral by imposing wage and price controls, as did Nixon in 1971; however, such controls only further diminish the utility of money as a means of purchasing goods. Consequently, when the controls are lifted, as in 1974, the spiral resumes with renewed vigor.      Next page
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