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115-598: The initiative was a trading plan that was designed to inject large amounts of American capital into the South Vietnamese economy to help fuel its industrialization, growth and self-sufficiency, without incurring the high levels of inflation that would normally occur in such a drastic injection of money. The CIP was a scheme whereby US dollars were given to the South Vietnamese government treasury. Selected businesspeople were given import licenses that allowed them to purchase US dollars with South Vietnamese currency at

230-522: A B.S. in history from Harvard University in 1940. During World War II , Kahin served in the United States Army between 1942 and 1945, where "he was trained as one of a group of 60 GIs who were to be parachuted into Japanese-occupied Indonesia in advance of Allied forces ". However, the operation was canceled after it was determined that U.S. forces would bypass the Indies after

345-570: A Fulbright professor at London University . Kahin was a member of the Council on Foreign Relations and the American Academy of Arts and Sciences . We voted for the maintenance of academic freedom , believing that without that essential quality there can be no relationship of any kind between blacks and a university, because without that quality you don't have a university. On April 19, 1969, Cornell's Afro-American Society occupied

460-748: A fraudulent referendum , and the aid continued as the US wanted to build a strong and stable anti-communist state in Southeast Asia. When the program was first introduced, it generated turbulence for merchant importers in Vietnam. As a large proportion of the imports up to that point had been from France, traders who were dependent on selling French products found themselves in difficulties as their wares would now be more expensive than those of import license holders who now had access to cheaper American alternatives. The suppliers of French goods threatened to organize

575-496: A postgraduate education program for diplomats from around the world who were in the middle of their careers. He also helped many Indonesian intellectuals, including Deliar Noer and sociologist Selo Soemardjan , obtain education in the United States. Several of Kahin's students and associates, including Herbert Feith , went on to establish similar programs at the universities where they subsequently taught. At one point,

690-468: A currency devaluation has on the price of goods. Other economic concepts related to inflation include: deflation  – a fall in the general price level; disinflation  – a decrease in the rate of inflation; hyperinflation  – an out-of-control inflationary spiral; stagflation  – a combination of inflation, slow economic growth and high unemployment; reflation  – an attempt to raise

805-707: A dogmatic perpetuation of past error. Let us also not fail to distinguish between the credibility and honor of the principal architects of our cambodian policy – the CIA, the Pentagon, and Henry Kissinger – and that of the United States as nation. In his foreword to Gareth Porter's book Cambodia: Starvation and Revolution , Kahin argued that Khmer Rouge policies "were not, then, applications of some irrational ideology, but reflected pragmatic solutions by leaders who had to rely exclusively on Cambodia's own food resources and who lacked facilities for its internal transport." After Kahin

920-585: A dollar in exchange for assets worth at least a dollar, the issuing bank's assets will naturally move in step with its issuance of money, and the money will hold its value. Should the bank fail to get or maintain assets of adequate value, then the bank's money will lose value, just as any financial security will lose value if its asset backing diminishes. The real bills doctrine (also known as the backing theory) thus asserts that inflation results when money outruns its issuer's assets. The quantity theory of money, in contrast, claims that inflation results when money outruns

1035-572: A great deal of money fighting costly wars , and reacted by printing more money, leading to inflation. Fearing the inflation that plagued the Yuan dynasty, the Ming dynasty initially rejected the use of paper money, and reverted to using copper coins. During the Malian king Mansa Musa 's hajj to Mecca in 1324, he was reportedly accompanied by a camel train that included thousands of people and nearly

1150-579: A hundred camels. When he passed through Cairo , he spent or gave away so much gold that it depressed its price in Egypt for over a decade, reducing its purchasing power. A contemporary Arab historian remarked about Mansa Musa's visit: Gold was at a high price in Egypt until they came in that year. The mithqal did not go below 25 dirhams and was generally above, but from that time its value fell and it cheapened in price and has remained cheap till now. The mithqal does not exceed 22 dirhams or less. This has been

1265-517: A large hindrance in several areas, as the South Vietnamese government had a policy of having majority ownership of any industry deemed to be of vital national importance, as well as banning foreigners from having a stake in such ventures. South Vietnam's Ambassador to the US, Tran Van Chuong protested to the Americans about this clause, without success. Chuong wrote that the American restriction on

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1380-668: A memorial service was held in Ithaca, New York , for him and to commemorate the 25th anniversary of the end of the Vietnam War . A memoir which he never completed was brought to publication by his wife Audrey Richey Kahin ( Kahin 2003 ). Kahin is also survived by his son Brian, daughter Sharon, sister Peggy Kahin Webb, and two grandchildren. Kahin was a major influence on the foreign policy thinking of Sandy Berger , United States National Security Advisor under President Bill Clinton . He

1495-543: A move was not possible in a country with low production such as Vietnam. In 1963, the US Ambassador Frederick Nolting and his economic advisers exhorted Diem to spend more of the CIP funds on rural development in an attempt to shore up peasant support in the face of increasing communist pressure, but were rebuffed. On October 5, 1963, the CIP was briefly suspended by the United States in the wake of

1610-544: A personal relationship, of any involvement with a rebellion movement against the Indonesian government. The book also described a "destructive relationship" between the United States and Indonesia during Sukarno's presidency. Kahin helped develop Indonesian studies in the United States at a time when the majority of material on Indonesia was held at Leiden University in the Netherlands . At Cornell, he introduced

1725-776: A power vacuum resulted. The communist-dominated Vietminh of Ho Chi Minh fought for Vietnamese independence, while the French attempted to regain control of their colony by creating the French Union -allied State of Vietnam . Up until 1954, the First Indochina War raged. In 1954, the French lost the Battle of Dien Bien Phu and the Geneva Conference was held to determine the future of French Indochina. The Vietminh were given control of North Vietnam , while

1840-460: A rate far below the market value. The importers then used their American currency to buy US goods, while the Saigon government kept the South Vietnamese currency paid by the businessmen to fund the military and public service. The objective of the mechanism was to inject large amounts of money into the economy in an indirect way, through material goods, so that inflation would be avoided. However,

1955-663: A reduction in variation in most macroeconomic indicators – an event known as the Great Moderation . Alexander the Great's conquest of the Persian Empire in 330 BCE was followed by one of the earliest documented inflation periods in the ancient world. Rapid increases in the quantity of money or in the overall money supply have occurred in many different societies throughout history, changing with different forms of money used. For instance, when silver

2070-411: A rise (or fall) in the expected inflation rate will typically result in a rise (or fall) in nominal interest rates, giving a smaller effect if any on real interest rates . In addition, higher expected inflation tends to be built into the rate of wage increases, giving a smaller effect if any on the changes in real wages . Moreover, the response of inflationary expectations to monetary policy can influence

2185-433: A rising price level within a narrower set of assets, goods or services within the economy, such as commodities (including food, fuel, metals), tangible assets (such as real estate), services (such as entertainment and health care), or labor . Although the values of capital assets are often casually said to "inflate," this should not be confused with inflation as a defined term; a more accurate description for an increase in

2300-423: A series of significant shortages and surpluses of various goods due to their inexperience in judging market forces and resultant imbalances in the economy. Initially 25,000 applications for import licenses were received, many from speculators. In the early years of the initiative, a proportion of the US funding for the CIP came through the proceeds of the sale of surplus American agricultural products to France. Upon

2415-399: A strike, but this never materialized. At the time, South Vietnam was also suffering from a lack of foreign currency reserves and the CIP was seen as an urgent mechanism of remedying this. The introduction of the CIP brought an unprecedented new level of economic liberalism and capitalism, and at first, the entrepreneurial class struggled to meet the challenges of a deregulated market, leading to

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2530-479: A weighting bias in inflation measurement. For example, during the COVID-19 pandemic it has been shown that the basket of goods and services was no longer representative of consumption during the crisis, as numerous goods and services could no longer be consumed due to government containment measures ("lock-downs"). Over time, adjustments are also made to the type of goods and services selected to reflect changes in

2645-448: Is 4.28%, meaning the general level of prices for typical U.S. consumers rose by approximately four percent in 2007. Other widely used price indices for calculating price inflation include the following: Other common measures of inflation are: ∴ GDP Deflator = Nominal GDP Real GDP {\displaystyle {\mbox{GDP Deflator}}={\frac {\mbox{Nominal GDP}}{\mbox{Real GDP}}}} In some cases,

2760-511: Is broader than the CPI and contains a larger basket of goods and services. Inflation is politically driven, and policy can directly influnce the trend of inflation. The RPI is indicative of the experiences of a wide range of household types, particularly low-income households. To illustrate the method of calculation, in January 2007, the U.S. Consumer Price Index was 202.416, and in January 2008 it

2875-585: Is considered a classic on Indonesian history . In 1951, Kahin became an assistant professor of government at Cornell University . He received tenure and was promoted to associate professor in 1954; he became a full professor in 1959. He became the director of Cornell's Southeast Asia Program in 1961 and held the position until 1970. Kahin also founded the Cornell Modern Indonesia Project in 1954 and served as its director until his retirement in 1988. Between 1962 and 1963, he became

2990-530: Is still considered a classic on Indonesian history , Kahin became a faculty member at Cornell University . At Cornell, he became the director of its Southeast Asia Program and founded the Cornell Modern Indonesia Project. Kahin's incomplete memoir was published posthumously in 2003. George McTurnan Kahin was born on January 25, 1918, in Baltimore, Maryland , and grew up in Seattle, Washington . He received

3105-430: Is the sum of the weighted prices of items in the "basket". A weighted price is calculated by multiplying the unit price of an item by the number of that item the average consumer purchases. Weighted pricing is necessary to measure the effect of individual unit price changes on the economy's overall inflation. The consumer price index , for example, uses data collected by surveying households to determine what proportion of

3220-403: Is usually measured using a consumer price index (CPI). When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of CPI inflation is deflation , a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate ,

3335-633: The Black Death began before the arrival of New World metal, and may have begun a process of inflation that New World silver compounded later in the 16th century. A pattern of intermittent inflation and deflation periods persisted for centuries until the Great Depression in the 1930s, which was characterized by major deflation. Since the Great Depression, however, there has been a general tendency for prices to rise every year. In

3450-648: The McNamara Taylor mission , a fact-finding expedition to South Vietnam conducted by Secretary of Defense Robert McNamara and Chairman of the Joint Chiefs of Staff General Maxwell D. Taylor to investigate the progress of the fight against the communist Vietcong insurgency. The report concluded that Diem was not concentrating on fighting the insurrection but was instead preoccupied with quelling Buddhist protests for religious equality, such as raiding pagodas and firing on Buddhist dissidents . One of

3565-524: The Michigan State University Group that he was happy that the CIP had allowed him to build a large support base among the newly created middle and upper class. American economic aid administrators were also aware of the effects of the CIP on urban political support for Diem and his successors. They were aware that the CIP had not been yielding substantial gains in economic development, and noted this in their reports, but said that

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3680-655: The Potsdam Conference . As a result, his unit was sent to the European theater . He earned the rank of sergeant before leaving the Army. Kahin's interest in Southeast Asia developed during this period, and he learned to speak Indonesian and Dutch . Kahin returned after the war to complete his M.A. from Stanford University , which he received in 1946. His thesis was titled The Political Position of

3795-629: The Willard Straight Hall student union in protest against "the university's racist attitudes and irrelevant curriculum" regarding racial issues. The university was divided between proponents of the inclusion of the principles of social justice in course instruction and advocates of academic freedom for the faculty. This clash affected the Department of Government, where Kahin and a number of professors defending academic freedom resided. Many of these professors had considered leaving

3910-399: The base effect as well. Inflation measures are often modified over time, either for the relative weight of goods in the basket, or in the way in which goods and services from the present are compared with goods and services from the past. Basket weights are updated regularly, usually every year, to adapt to changes in consumer behavior. Sudden changes in consumer behavior can still introduce

4025-403: The core inflation index which is used by central banks to formulate monetary policy . Most inflation indices are calculated from weighted averages of selected price changes. This necessarily introduces distortion, and can lead to legitimate disputes about what the true inflation rate is. This problem can be overcome by including all available price changes in the calculation, and then choosing

4140-415: The median value. In some other cases, governments may intentionally report false inflation rates; for instance, during the presidency of Cristina Kirchner (2007–2015) the government of Argentina was criticised for manipulating economic data, such as inflation and GDP figures, for political gain and to reduce payments on its inflation-indexed debt. The true inflation is one percentage point lower than

4255-700: The money supply have taken place a number of times in countries experiencing political crises, producing hyperinflations  – episodes of extreme inflation rates much higher than those observed in earlier periods of commodity money . The hyperinflation in the Weimar Republic of Germany is a notable example. The hyperinflation in Venezuela is the highest in the world, with an annual inflation rate of 833,997% as of October 2018. Historically, inflations of varying magnitudes have occurred, interspersed with corresponding deflationary periods, from

4370-494: The opportunity cost of holding money, uncertainty over future inflation, which may discourage investment and savings, and, if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity , allowing the central bank greater freedom in carrying out monetary policy , encouraging loans and investment instead of money hoarding, and avoiding

4485-584: The price revolution of the 16th century, which was driven by the flood of gold and particularly silver seized and mined by the Spaniards in Latin America, to the largest paper money inflation of all time in Hungary after World War II. However, since the 1980s, inflation has been held low and stable in countries with independent central banks . This has led to a moderation of the business cycle and

4600-547: The velocity of money because of innovations in the payment technology, in particular the increased use of bills of exchange , contributed to the price revolution. An alternative theory, the real bills doctrine (RBD), originated in the 17th and 18th century, receiving its first authoritative exposition in Adam Smith 's The Wealth of Nations . It asserts that banks should issue their money in exchange for short-term real bills of adequate value. As long as banks only issue

4715-869: The 1970s and early 1980s, annual inflation in most industrialized countries reached two digits (ten percent or more). The double-digit inflation era was of short duration, however, inflation by the mid-1980s returned to more modest levels. Amid this, general trends there have been spectacular high-inflation episodes in individual countries in interwar Europe , towards the end of the Nationalist Chinese government in 1948–1949, and later in some Latin American countries, in Israel, and in Zimbabwe. Some of these episodes are considered hyperinflation periods, normally designating inflation rates that surpass 50 percent monthly. Given that there are many possible measures of

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4830-555: The Bank of England had engaged in over-issue of bank notes, leading to commodity price increases. In the late 19th century, supporters of the quantity theory of money led by Irving Fisher debated with supporters of bimetallism . Later, Knut Wicksell sought to explain price movements as the result of real shocks rather than movements in money supply, resounding statements from the real bills doctrine. In 2019, monetary historians Thomas M. Humphrey and Richard Timberlake published "Gold,

4945-438: The CIP as the "greatest invention since the wheel". Although the plan was theoretically sound, it was ineffective in stimulating economic growth. During Diem's time, there was little meaningful economic investment or development of infrastructure. The businessmen mostly used the import subsidies to purchase consumer goods such as boats, motorbikes, refrigerators, radios, music systems and other similar goods, which were luxuries at

5060-451: The CIP had the effect of building an urban middle class base for his regime through the proliferation of consumer goods, Diem was unhappy with the situation, fearing the long-term detrimental effects that the lack of investment in capital goods would have on his country. He was particularly opposed to the clause in the importation regulations that restricted the purchase of capital goods to businesses that were entirely private. This proved to be

5175-719: The Chinese in Indonesia ( Kahin 1946 ), describing the role of Chinese Indonesians in the new country. He continued to pursue of his interest in Southeast Asia, going to Indonesia in 1948 to conduct research during the Indonesian National Revolution . During his work, he was arrested by Dutch colonial authorities and expelled from the country. Kahin received a Ph.D. in political science from Johns Hopkins University in 1951. His dissertation, titled Nationalism and Revolution in Indonesia ( Kahin 1952 ),

5290-481: The Latin inflare (to blow into or inflate). Conceptually, inflation refers to the general trend of prices, not changes in any specific price. For example, if people choose to buy more cucumbers than tomatoes, cucumbers consequently become more expensive and tomatoes less expensive. These changes are not related to inflation; they reflect a shift in tastes. Inflation is related to the value of currency itself. When currency

5405-704: The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder 1922–1938". John Maynard Keynes in his 1936 main work The General Theory of Employment, Interest and Money emphasized that wages and prices were sticky in the short run, but gradually responded to aggregate demand shocks. These could arise from many different sources, e.g. autonomous movements in investment or fluctuations in private wealth or interest rates. Economic policy could also affect demand, monetary policy by affecting interest rates and fiscal policy either directly through

5520-432: The Saigon regime and its American sponsor" and that it "provided the means for a way of life that was as artificial as the economy upon which it rested". Kahin said that the initiative had the opposite effect of its stated aims, in that it promoted increasing economic dependency. Inflation Heterodox In economics , inflation is a general increase in the prices of goods and services in an economy . This

5635-475: The South Vietnamese treasury. The regimes sold these dollars to business people who held licenses to import American goods. The businessmen bought the US dollars from the Saigon treasury with their South Vietnamese piasters at half the official exchange rate; they then used this cheaply acquired American currency to import US goods. This meant that American manufacturers would still get the same amount of US currency they would have received for selling their goods on

5750-520: The State of Vietnam controlled the territory south of the 17th parallel . The Geneva agreements, which the State of Vietnam did not sign, called for reunification elections to be held in 1956. The State of Vietnam received support from the US and other anti-communist countries in the midst of the Cold War , which saw it as a partner in a fight against the spread of communism. The Commercial Import Program

5865-474: The US dollar, arguing that it would diminish the value of US aid to South Vietnam and undermine the urban middle class support for his regime as they would resent the loss of their cheap consumer and luxury goods. During a meeting in Washington during his state visit in 1957 , Diem told Secretary of State John Foster Dulles and Ambassador Elbridge Durbrow that devaluation would set off panic, and that such

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5980-686: The United States blocked Kahin's passport, and the Suharto government in Indonesia also denied him a visa. In 1991, Indonesian foreign minister Ali Alatas awarded Kahin the Bintang Jasa Pratama (English: Medal of Merit, First Class ) for his work as a "pioneer and precursor of Indonesian studies in the U.S." Kahin married Margaret Baker in 1942. They later divorced . Kahin died at Strong Memorial Hospital in Rochester, New York , on January 29, 2000. Several months after his death,

6095-522: The actual rate of inflation that most recently occurred. Rational expectations models them as unbiased, in the sense that the expected inflation rate is not systematically above or systematically below the inflation rate that actually occurs. A long-standing survey of inflation expectations is the University of Michigan survey. Inflation expectations affect the economy in several ways. They are more or less built into nominal interest rates , so that

6210-456: The alliance began to falter, they cut off funding as a gesture to the urban civil servant and military officer class that they disapproved of Diem. Following the South Vietnamese leader's overthrow and assassination in a US-backed coup, the CIP resumed. During World War II, Imperial Japan attacked Indochina and wrested control from France, but when they were defeated by the Allies in 1945,

6325-668: The annualized percentage change in a general price index . As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. Changes in inflation are widely attributed to fluctuations in real demand for goods and services (also known as demand shocks , including changes in fiscal or monetary policy ), changes in available supplies such as during energy crises (also known as supply shocks ), or changes in inflation expectations, which may be self-fulfilling. Moderate inflation affects economies in both positive and negative ways. The negative effects would include an increase in

6440-482: The core inflation rate to get a better estimate of long-term future inflation trends overall. The inflation rate is most widely calculated by determining the movement or change in a price index, typically the consumer price index . The inflation rate is the percentage change of a price index over time. The Retail Prices Index is also a measure of inflation that is commonly used in the United Kingdom. It

6555-650: The country after ousting Bảo Đại and declaring himself president, until 1961, the US provided Saigon with USD1.447 billion in aid, mostly through the CIP. In addition, USD95.6 million of loans were given. In 1958 and 1959, the CIP accounted for around 80% of economic assistance. By 1960, Diem had accumulated USD216.4 million in reserves. During the Diem era, around 43% of the CIP revenue went into military spending. The amount of CIP aid peaked at USD398 million in 1966 and began dropping thereafter, reaching USD233 million by 1973. The program used import subsidies to pump US dollars into

6670-430: The course of a year, with no change in quality, then this price difference represents inflation. This single price change would not, however, represent general inflation in an overall economy. Overall inflation is measured as the price change of a large "basket" of representative goods and services. This is the purpose of a price index , which is the combined price of a "basket" of many goods and services. The combined price

6785-491: The coveted licenses to the businessmen until a bribe was paid. Another criticism of the CIP was that the funds collected by the government were not used for any significant amount of government-sector economic investment but mainly to fund the army. Diem defended this by stating that national security was paramount. In time, the ineffectiveness of the CIP began to concern the Eisenhower administration , who were worried about

6900-721: The credibility of money in the present. In the 19th century, the banking schools had greater influence in policy in the United States and Great Britain, while the currency schools had more influence "on the continent", that is in non-British countries, particularly in the Latin Monetary Union and the Scandinavian Monetary Union . During the Bullionist Controversy during the Napoleonic Wars , David Ricardo argued that

7015-649: The division of the effects of policy between inflation and unemployment (see monetary policy credibility ). Theories of the origin and causes of inflation have existed since at least the 16th century. Two competing theories, the quantity theory of money and the real bills doctrine , appeared in various disguises during century-long debates on recommended central bank behaviour. In the 20th century, Keynesian , monetarist and new classical (also known as rational expectations ) views on inflation dominated post-World War II macroeconomics discussions, which were often heated intellectual debates, until some kind of synthesis of

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7130-556: The economy's production of goods. During the 19th century, three different schools debated these questions: The British Currency School upheld a quantity theory view, believing that the Bank of England 's issues of bank notes should vary one-for-one with the bank's gold reserves. In contrast to this, the British Banking School followed the real bills doctrine, recommending that the bank's operations should be governed by

7245-462: The failure of the program to propel economic development, but did not try and divert the spending to investment as they regarded the solidification of urban support for the government to be very important. They also used the dependence of the urban class on the CIP to achieve political changes in South Vietnam. In 1963, when the US sought to pressure the government of Ngo Dinh Diem after

7360-411: The free market exchange rate for the two currencies. Although the fixed exchange rate meant that Americans were heavily funding the South Vietnamese economy and that the importing firms could obtain more goods for their money, the rate also meant that South Vietnam goods would not be economically competitive on the export market. Diem was reluctant to cut the currency rate, which was fixed at 35 piasters to

7475-576: The free market, while South Vietnamese importers could get twice as much goods for the same money. The piasters that the Saigon government collected from selling the US aid dollars were to be placed in a fund held by the National Bank of Vietnam, which was to be used to fund the expansion and training of the Army of the Republic of Vietnam , national police and civil service. During the rule of Diem,

7590-480: The general level of prices to counteract deflationary pressures; and asset price inflation  – a general rise in the prices of financial assets without a corresponding increase in the prices of goods or services; agflation  – an advanced increase in the price for food and industrial agricultural crops when compared with the general rise in prices. More specific forms of inflation refer to sectors whose prices vary semi-independently from

7705-461: The general trend. "House price inflation" applies to changes in the house price index while "energy inflation" is dominated by the costs of oil and gas. Inflation has been a feature of history during the entire period when money has been used as a means of payment. One of the earliest documented inflations occurred in Alexander the Great 's empire 330 BCE . Historically, when commodity money

7820-429: The government could issue more coins without increasing the amount of silver used to make them. When the cost of each coin is lowered in this way, the government profits from an increase in seigniorage . This practice would increase the money supply but at the same time the relative value of each coin would be lowered. As the relative value of the coins becomes lower, consumers would need to give more coins in exchange for

7935-492: The government's support among the urban minority. As the CIP allowed licensees to import goods at half price, it was regarded as a virtual guarantee of business success, regardless of entrepreneurial skill. As a result, the licenses were highly prized. For those who were not confident in their sales ability, a healthy profit was usually made by selling their license to other willing businessmen, especially as demand far outstripped supply. A 1966 US Government report concluded that it

8050-492: The importation of capital goods "perpetuates dependence on this aid", and that "American aid would be most valuable if it were partly devoted to promoting [the] country's industrial capacities". Over time, the economists in the Eisenhower administration became frustrated with Diem's refusal to devaluate the piaster once the Republic of Vietnam had become a stable nation. Diem refused to make the CIP exchange rate equivalent to

8165-447: The inception of the program in 1955, around 20,000 CIP licenses were granted, but it was determined that the progress was too unwieldy to manage, so the number of licenses was decreased and people were obliged to assemble into conglomerates to access the scheme. At first, inflation was regarded as such a pressing concern that there were very few limitations on what could be imported, the most notable restrictions being alcohol and jewelry. It

8280-409: The inefficiencies associated with deflation. Today, some economists favour a low and steady rate of inflation, though inflation is less popular with the general public than with economists, since "...inflation simultaneously transfers some of [the] people’s income into the hands of government." Low (as opposed to zero or negative ) inflation reduces the probability of economic recessions by enabling

8395-446: The initiative failed to generate much economic development, as license holders spent most of their funds on consumer goods. The main effect of the aid package was a rapid expansion in the urban middle and upper class, while life remained mostly unchanged for South Vietnam's rural majority. This served to increase anti-government resentment among peasants, while solidifying urban support for the Saigon government. US officials were aware of

8510-474: The international prestige and credibility of the United States are inextricably tied to its insuring the survival of the present government in Phnom Penh through international or nongovernmental channels. In Cambodia, US officials assert that US credibility and national honor are at stake. If this is so it is imperative to distinguish between credibility for relief of human suffering as against credibility for

8625-456: The labor market to adjust more quickly in a downturn and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy while avoiding the costs associated with high inflation. The task of keeping the rate of inflation low and stable is usually given to central banks that control monetary policy, normally through the setting of interest rates and by carrying out open market operations . The term originates from

8740-416: The lack of industrialization. The corruption that permeated the initiative remained a problem. The rural peasants of Vietnam, who comprised more than 80% of the population, were unaffected by the aid package except for the resentment that it instilled in them when they observed the relative affluence of their city counterparts compared to their own impoverished state. It was estimated that 1961 that unemployment

8855-499: The level of government final consumption expenditure or indirectly by changing disposable income via tax changes. George McTurnan Kahin George McTurnan Kahin (January 25, 1918 – January 29, 2000) was an American historian and political scientist . He was one of the leading experts on Southeast Asia and a critic of United States involvement in the Vietnam War . After completing his dissertation, which

8970-524: The majority of the cost of military, police and public service was paid by the US through the CIP. As the extra money was not actually circulating in the South Vietnamese economy and competing for the same supply of goods and services, inflation was not stimulated. A similar fiscal device was employed in the Marshall Plan aid package for the rebuilding of Western Europe following the destruction caused during World War II. One American economist described

9085-430: The measures are meant to be more humorous or to reflect a single place. This includes: Measuring inflation in an economy requires objective means of differentiating changes in nominal prices on a common set of goods and services, and distinguishing them from those price shifts resulting from changes in value such as volume, quality, or performance. For example, if the price of a can of corn changes from $ 0.90 to $ 1.00 over

9200-497: The needs of trade: Banks should be able to issue currency against bills of trading, i.e. "real bills" that they buy from merchants. A third group, the Free Banking School, held that competitive private banks would not overissue, even though a monopolist central bank could be believed to do it. The debate between currency, or quantity theory, and banking schools during the 19th century prefigures current questions about

9315-408: The official one, according to research. Therefore, the 2% inflation target is needed to prevent the true inflation being close to zero or even deflation. The reasons are the following: Nevertheless, people overestimate the inflation even vs. the measured inflation. This is because they focus more on commonly-bought items than on durable goods, and more on price increases than on price decreases. On

9430-426: The other hand, different people have different shopping baskets and hence face different inflation rates. Inflation expectations or expected inflation is the rate of inflation that is anticipated for some time in the foreseeable future. There are two major approaches to modeling the formation of inflation expectations. Adaptive expectations models them as a weighted average of what was expected one period earlier and

9545-409: The political impacts of the massive infusion into the South Vietnamese economy was to expand the urban middle-class and ease the pressure on the government to collect taxes. This was because the government had set high import duties, which were effectively 50% of the cut-price exchange rate used under the CIP; these funds were also part of normal revenue, and were not subject to American oversight, unlike

9660-480: The price level, there are many possible measures of price inflation. Most frequently, the term "inflation" refers to a rise in a broad price index representing the overall price level for goods and services in the economy. The consumer price index (CPI), the personal consumption expenditures price index (PCEPI) and the GDP deflator are some examples of broad price indices. However, "inflation" may also be used to describe

9775-416: The proceeds of the counterpart fund. As a result of the proceeds of the import duty, income tax was very low, and without the progressive income tax rate in most countries, the upper-class were not affected by taxation as much as their peers in other nations, and thus supported Diem strongly. The effective income taxation rate was no more than 5%, and the South Vietnamese president privately told an adviser from

9890-416: The program should be continued regardless, as it was effective in enriching the urban middle class and ensuring their political support, thereby gaining loyalty from military officers, business leaders and public servants. A 1959 report concluded that if the CIP was absent or diluted to equilibrium economic levels, the resulting fall in living standards would create "serious political problems" due to erosion of

10005-459: The quantity of redeemable banknotes outstripped the quantity of metal available for their redemption. At that time, the term inflation referred to the devaluation of the currency, and not to a rise in the price of goods. This relationship between the over-supply of banknotes and a resulting depreciation in their value was noted by earlier classical economists such as David Hume and David Ricardo , who would go on to examine and debate what effect

10120-414: The reasons for the CIP suspension was to give military officers a signal that Washington was unhappy with Diem and therefore increase the prospects of a coup, as well as to try and foster urban resentment towards Diem among those that had previously benefited from the CIP. Another was that Diem might change his policy direction in accordance with US wishes, although they considered this to be unlikely. Funding

10235-403: The review policy on several occasions, citing several private infrastructure investments that were blocked by American administrators. Nhu and Diem felt that the regulations that the Americans put on the use of the piaster fund obtained from Vietnamese importers were stifling their ability to accelerate development, especially as the planning and approval reviews took a long time. Despite the fact

10350-534: The same goods and services as before. These goods and services would experience a price increase as the value of each coin is reduced. Again at the end of the third century CE during the reign of Diocletian , the Roman Empire experienced rapid inflation. Song dynasty China introduced the practice of printing paper money to create fiat currency . During the Mongol Yuan dynasty , the government spent

10465-521: The second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the " price revolution ", with prices on average rising perhaps sixfold over 150 years. This is often attributed to the influx of gold and silver from the New World into Habsburg Spain , with wider availability of silver in previously cash-starved Europe causing widespread inflation. European population rebound from

10580-1052: The sorts of goods and services purchased by 'typical consumers'. New products may be introduced, older products disappear, the quality of existing products may change, and consumer preferences can shift. Different segments of the population may naturally consume different "baskets" of goods and services and may even experience different inflation rates. It is argued that companies have put more innovation into bringing down prices for wealthy families than for poor families. Inflation numbers are often seasonally adjusted to differentiate expected cyclical cost shifts. For example, home heating costs are expected to rise in colder months, and seasonal adjustments are often used when measuring inflation to compensate for cyclical energy or fuel demand spikes. Inflation numbers may be averaged or otherwise subjected to statistical techniques to remove statistical noise and volatility of individual prices. When looking at inflation, economic institutions may focus only on certain kinds of prices, or special indices , such as

10695-653: The state of affairs for about twelve years until this day by reason of the large amount of gold which they brought into Egypt and spent there [...]. There is no reliable evidence of inflation in Europe for the thousand years that followed the fall of the Roman Empire, but from the Middle Ages onwards reliable data do exist. Mostly, the medieval inflation episodes were modest, and there was a tendency that inflationary periods were followed by deflationary periods. From

10810-446: The subsidies created more economic production. In 1959, the amount of clothing imported (24 million USD) was only marginally lower than the amount of machinery imported (28 million USD). The government funds generated from selling importing licenses also became a problem, with corruption and explicit theft dogging its effectiveness as a means of bankrolling the military and civil service. In addition, some government officials would not sell

10925-408: The time. The program was thus effective in expanding the size of the urban middle class, but it did not generate much economic investment. In 1957, it was estimated that at least 75% of the good imported were consumer goods or materials used to produce them. Only a minority of the purchases were of capital goods such as manufacturing equipment and supplies for factory production. As a result, not much of

11040-510: The typical consumer's overall spending is spent on specific goods and services, and weights the average prices of those items accordingly. Those weighted average prices are combined to calculate the overall price. To better relate price changes over time, indexes typically choose a "base year" price and assign it a value of 100. Index prices in subsequent years are then expressed in relation to the base year price. While comparing inflation measures for various periods one has to take into consideration

11155-492: The university due to the administration's policies promoting racial justice, and many did following the end of the occupation. The following week, the Department of Government organized a teach-in on academic freedom, and Kahin was invited to speak at the event by department chair Peter Sharfman. Historian Walter LaFeber would later remember his remarks as "the most eloquent speech about academic freedom I have ever encountered anywhere up to that time or since that time". Kahin

11270-461: The value of a capital asset is appreciation. The FBI (CCI), the producer price index , and employment cost index (ECI) are examples of narrow price indices used to measure price inflation in particular sectors of the economy. Core inflation is a measure of inflation for a subset of consumer prices that excludes food and energy prices, which rise and fall more than other prices in the short term. The Federal Reserve Board pays particular attention to

11385-429: The various theories was reached by the end of the century. The price revolution from ca. 1550–1700 caused several thinkers to present what is now considered to be early formulations of the quantity theory of money (QTM). Other contemporary authors attributed rising price levels to the debasement of national coinages. Later research has shown that also growing output of Central European silver mines and an increase in

11500-403: The war to date. According to Kahin and Lewis, American policy was based on a distorted view of Vietnam. "Vietnam is a single nation, not two," Kahin and Lewis argued, and " South Vietnam constitutes an artificial creation whose existence depends on the sustained application of American power." When U.S. Senator George McGovern campaigned in the 1972 presidential election on a platform to end

11615-533: The war, Kahin became his foreign policy adviser. In early 1975, Kahin gave testimony to the US Senate Subcommittee on Foreign Assistance and Economic Policy. In his opening, he said: Mr Chairman, my own research makes very clear that responsibility for the outbreak of the tragic civil war in Cambodia lies with the very architects of foreign policy in the executive branch who now argue that

11730-413: The way the Americans set up the CIP. Diem and Nhu claimed that the paperwork involved in the applications for imports made the process was too slow and hindered the development of an emerging economy where the market situation changed rapidly. In particular, any investment in capital goods by importers that cost more than USD500,000 needed a formal American review before approval. Nhu also publicly criticized

11845-424: Was 211.080. The formula for calculating the annual percentage rate inflation in the CPI over the course of the year is: ( 211.080 − 202.416 202.416 ) × 100 % = 4.28 % {\displaystyle \left({\frac {211.080-202.416}{202.416}}\right)\times 100\%=4.28\%} The resulting inflation rate for the CPI in this one-year period

11960-484: Was a leading critic of the Vietnam War and opposed United States involvement. He participated in a teach-in in May 1965 and led the anti-war position. Later, he co-wrote The United States in Vietnam ( Kahin & Lewis 1969 ) with Stanford professor John Lewis, a publication which helped to turn people in academia against U.S. intervention in Vietnam . It was one of the most comprehensive studies of American involvement in

12075-411: Was created in January 1955, immediately upon the transfer of France's remaining direct influence over the State of Vietnam to the chief of state, former Emperor Bảo Đại and his Prime Minister Ngo Dinh Diem . The Americans and Diem feared a communist electoral victory and national polls never took place. In October, Diem proclaimed himself the president of the newly formed Republic of Vietnam after he won

12190-623: Was expelled from Indonesia in 1949, he helped young Indonesian diplomats Sumitro Djojohadikusumo , Soedarpo Sastrosatomo , and Soedjatmoko during their work at the United Nations and in Washington, D.C. He also developed a close relationship with Sukarno and Mohammad Hatta , the first President and Vice President of Indonesia. In his book Subversion as Foreign Policy ( Kahin & Kahin 1995 ), he attempted to clear former Prime Minister Mohammad Natsir , with whom he also developed

12305-413: Was imprisoned by Diem and barred from taking up his position, said that "The U.S. Commercial Import Program—which costs us nothing—brings in on a massive scale luxury goods of all kinds, which give us an artificial society—enhanced material conditions that don't amount to anything, and no sacrifice; it brings luxury to our ruling group and middle class, and luxury means corruption." One of

12420-403: Was linked with gold, if new gold deposits were found, the price of gold and the value of currency would fall, and consequently, prices of all other goods would become higher. By the nineteenth century, economists categorised three separate factors that cause a rise or fall in the price of goods: a change in the value or production costs of the good, a change in the price of money which then

12535-405: Was possible to guarantee a 100% domestic profit on piasters, and that a 50% profit could be safely achieved by using black market exchange rates and depositing one's money in an American bank. Officials also levied another 18 piasters per dollar on customs duties on goods imported into the country. Despite its shorter term political benefits, the South Vietnamese government also had complaints about

12650-403: Was reasoned that more restrictions on imports would cause a lack of supply of goods, causing price increases. However, restrictions were increased in the next three years to an average of 75. In 1955, Washington pumped USD322.4 million into South Vietnam, and the historian George McTurnan Kahin calculated that 87% of this came through the CIP. From the end of 1955, when Diem took full control of

12765-548: Was restored in early November 1963, about a month later, after the deposal and assassination of Diem in a military coup. The CIP continued until the dissolution of South Vietnam in April 1975 when the communists overran South Vietnam following the withdrawal of US forces following the 1973 cease-fire agreement . Kahin said that "together with other elements of U.S. economic support...substantially expanded South Vietnam's middle class and helped purchase its political loyalty to both

12880-412: Was running at 25% and that private investment in the economy was less than 10%. However, the program was credited with transforming the textile industry, as 25,000 sewing machines were imported in the first year of its operation. Phan Quang Dan , an anti-communist opposition politician who was Diem's most prominent opponent, and one of only two dissidents to win a seat at the 1959 legislative election but

12995-456: Was used as currency, the government could collect silver coins, melt them down, mix them with other, less valuable metals such as copper or lead and reissue them at the same nominal value , a process known as debasement . At the ascent of Nero as Roman emperor in AD 54, the denarius contained more than 90% silver, but by the 270s hardly any silver was left. By diluting the silver with other metals,

13110-399: Was used, periods of inflation and deflation would alternate depending on the condition of the economy. However, when large, prolonged infusions of gold or silver into an economy occurred, this could lead to long periods of inflation. The adoption of fiat currency by many countries, from the 18th century onwards, made much larger variations in the supply of money possible. Rapid increases in

13225-510: Was usually a fluctuation in the commodity price of the metallic content in the currency, and currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency. Following the proliferation of private banknote currency printed during the American Civil War , the term "inflation" started to appear as a direct reference to the currency depreciation that occurred as

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