The Age of Inflation is finished. Over the past four decades, the rise and fall of double-digit inflation has been the most significant force affecting the American economy. Inflation rose to 13% in 1979, from a little less than 2% in 1960, and then gradually descended to a little less than 2% in 2003. Going up, inflation harmed the economy – causing harsh recessions, a stagnant stock market, and lackluster gains in living standards. Coming down, inflation helped the economy – leading to longer expansions, a stock market boom, and stronger gains in living standards.

That’s the Age of Inflation in a nutshell; but it’s barely understood. One reason is simply the passage of time. Americans who were 20 in 1980, when double-digit inflation was at its most destructive, were barely old enough to appreciate what was happening. Yet, those people, now 44, are older than two-thirds of the population. They have no memory of rising inflation. As for declining inflation, its benefits have occurred in an almost-invisible manner. We haven’t paid much attention. Our economic debates blame or credit high-profile presidential policies – Ronald Reagan’s tax cuts, Bill Clinton’s budget surpluses or George W. Bush’s deficits – or focus on more dramatic upheavals: the Internet or globalization.

Inflation mattered more than any of these. Consider recessions. From 1969 to 1982, when inflation was highest, there were four recessions, including the two worst (1973-75 and 1981-82) since World War II. In 1982, unemployment peaked at 10.8%. Since 1982, the economy has suffered only two mild recessions (1990-91 and 2001).

Put differently, the economy has expanded in all but 16 months of the past 22 years. The central cause of this improvement seems obvious: lower inflation. Prices moved less abruptly. Government policies to suppress inflation – mainly tighter money, from the Federal Reserve – were deployed less often.

Low interest rates also signal the significance of declining inflation. Rates on 10-year Treasury bonds now hover around 4%. By way of contrast, they were 12.4% in 1984, 8.6% in 1990, and 6% in 2000. Interest rates on home mortgages and corporate bonds have also declined sharply. This slow-motion drop in borrowing costs has silently propelled the economy forward in the past two decades. And interest rates dropped mainly because inflation dropped.

Here’s why. Economists subdivide interest rates into three components: an amount compensating for expected inflation (investors don’t want to lose money to inflation); the “real return” earned by the lender or investor; and finally, an “inflation risk premium” – an amount covering the risk that no one can predict future inflation. For example, the 12% rate on 10-year Treasury bonds in 1984 might crudely be decomposed as follows: 2% for the “real” return; 8% to compensate for expected inflation; and a 2% “inflation risk premium.” As inflation dropped, inflationary expectations and the “inflation risk premium” shriveled.

Inflation’s fall also quietly boosted the stock market. At first, rising inflation killed stocks. In 1965, the Dow Jones Industrial Average opened at 874.13; in 1982, the Dow opened at 875 – 17 years and no movement. Higher interest rates caused by higher inflation attracted money from stocks into bank deposits, money market funds and bonds. But once inflation dropped, the process went into reverse. Money flowed back into stocks. By January 1987, the Dow had doubled; today’s level – about 10,500 – is 12 times its 1982 opening. People felt wealthier. They spent more. The economy advanced.

Declining inflation probably also improved productivity. Productivity gains have recently averaged about 3% a year. These gains – essentially, improved efficiency – underlie increases in wages, profits, and living standards. When inflation was highest, productivity gains were half their present level. Computers and the Internet are typically credited for the revival. But that’s not the whole story. As companies found it harder to raise prices, they turned to new technologies and other cost cutting techniques to improve profits.

The gains from purging double-digit inflation are a great untold story. The Federal Reserve’s staunch anti-inflationary policies, and stiff competitive pressures, from imports to Wal-Mart, demolished the deadly wage-price spiral. These gains – not Reagan’s tax cuts or Mr. Clinton’s budget policies – mostly explain the economy’s fabulous performance in the 1990s.

Some benefits – perhaps higher productivity growth and a smoother business cycle – may endure. But others, unfortunately, are fleeting. You can’t repeat the benefits of the steep fall of interest rates from double-digit inflationary levels. The same is true of the extraordinary bounce-back of the stock market. It was a one-time recovery from inflation’s damage. Future changes in inflation, interest rates and stocks will be smaller.

The economy must now advance without the afterburners of soaring stocks or rapidly falling interest rates. These were the final chapters of the Age of Inflation. What comes next is anyone’s guess.