When folks talk about hyperinflation, they often think it is just a case of governments printing too much money. And while that's of course part of it, nearly all cases (maybe all?) of hyperinflation are marked by supply destruction - the economy is no longer able to produce the goods and services needed by the population, so you have the same amount of money chasing fewer goods, and from there things can spiral. Cases in point:
1. In the Weimar Republic, Germany's productive capacity was devastated by WWI.
2. In Zimbabwe, which was "the bread basket of Africa", farm productivity famously plummeted due to the land redistribution policies of Robert Mugabe.
3. Looking at the current crisis in Sri Lanka, the forced switch to organic farming similarly destroyed farm productivity.
4. Though I wouldn't call it "hyperinflation", the COVID pandemic clearly caused shortages throughout the economy.
My point is that hyperinflation is rarely just caused by governments living beyond their means - the trigger is nearly always a supply shock, and then it's what governments do in the face of that supply shock that gives you hyperinflation.
Set this theory against the fact that there was zero net inflation in the US from 1800 to 1914, and endemic inflation since. What changed in 1914? The US switched to a fiat money system.
Clearly, it has something to do with fiat money.
(The Revolutionary Government also had massive inflation, and the Confederacy, too. What characteristic did they share? Fiat money.)
If shortages caused inflation, then one would expect to see corresponding deflation when those shortages eased. But that doesn't happen.
The 1800s were hardly an economic paradise though, the wild inflation/deflation cycles were destructive. Long-term stable, 2-3% inflation appears to be a good thing. It's not overly destructive to savings, but it's an incentive to invest in something productive in the long-term.
Deflation does occur when shortages ease in those sectors (see oil & gas prices), but inflation due to shortages does increase the general price level (including wage prices) and there is a degree of 'price stickiness' in the economy (workers generally don't get pay cuts - layoffs are easier perhaps) so the higher price level remains. You might expect below average inflation in the short term, but inflation expectations probably linger to some degree.
You need to re-read your history. European nations suspended the Gold Standard in 1914 due to the buildup related to WWI...but the U.S. did not. And we still had 100% inflation. In fact, the U.S. remained on the Gold Standard until 1933, and being on the gold standard did not prevent the Great Depression or decades of inflation. In fact, it played a large part in making it a "great" depression instead of just a regular downturn, and getting off the gold standard was what ended the Great Depression.
Similarly, everything you've said about the Great Depression is completely wrong. It was caused by a stock market crash known as Black Tuesday, which was the result of rampant speculative trading on margin. After a series of relatively small dips, a number of investors faced margin calls and had to sell their shares. A few of them decided to liquidate all of their stock holdings, triggering a 12.8% drop in the Dow (Black Monday), which led to many more speculators panic-selling the next day (Black Tuesday).
That first theory doesn’t hold because ancient empires such as the Romans did suffer a form of inflation. They just didn’t know what it was when they kept devaluing their currency.
>they often think it is just a case of governments printing too much money.
The exorbitant banknotes we see in this collection are more like each government's response to inflation once it has gone completely out-of-control.
In some sense they are trying to arrest the free-fall at an artificially imposed numerical point, by basically normalizing the losses already incurred up until that time.
Just goes to show how much easier it can be to manipulate the value of fiat currency compared to coin of stored value.
Seems like when stocks & bonds are denominated in fiat currency, in order for the securities to maintain their relative value, whilst maintaining volatility within tolerable ranges, the only direction for the currency to ever trend is being downward in value by comparison.
When stock certificates represent overwhelmingly more stored value than their equivalent in legal tender, that's not when you're going to have the most prosperity overall. This is not the way free enterprise started out.
We recovered well from that most recent devaluation is something that no ordinary wage earner said ever.
Fiat money seems like the result rather than the cause. As nations start to draw down their gold/asset reserves, it makes sense to switch to a fiat currency.
Clearly the cause is too much money out and not enough money in to government coffers rather than fiat.
Fiat money is as old as currency itself. Greek and Rome coin values did not correspond to their intrinsic metal content (at least not within their boundaries) and they were regularly debased. The Chinese used bronze coins and paper as currency.
But in the end it's a monetary phenomenon and it is the government's choice to have inflation instead of other (painful) measures to address a distribution problem.
I would say the truly necessary component to the hyperinflation phenomenon is the existence of privileged borrowers. When inflation is high, market interest rate is also high. To benefit from inflation one must be able to borrow at below inflation rate. With credit money borrowing is what creates new money. Often it's the government that chooses this over taxation for its own funding. Other times there may be other entrenched private interests who enjoy such privileges.
Its a psychological phenomenon. Lock people up for 2 years and they will want to go crazy when they get out.
Its the same reason why alcohol consumption is up and so is smoking for the first time in some years. Drug consumption is also up.
Appetite for debt is also up, anecdotally I have been thinking a lot recently on how being debt free causes me to leave lots of potential consumption, experiences and general quality of life on the table. All those things could be financed with debt. Never had such thoughts in the 2008-2019 decade
All sorts of violence is also having an uptick on a chart which is secularly going down.
I will go to my grave thinking that Putin would have never invaded Ukraine had he been able to host his monthly “kiss my ring” cerimonies/parties with his cronies. Instead he self isolated for 2+ years and he still mostly is.
Social isolation creates all sorts of pent up energy of all kinds
Yeah, it's usually a combination of these two factors. You live beyond your means for a decade or five, and then something else goes wrong: natural disaster, war, crop failure, sanctions, whatever. Situations that could be survivable otherwise trigger a downward spiral because you were pushing your luck before.
"Supply shock" may be just a fancy way of saying "The government wants more stuff but can't pay for it". Which tends to apply everywhere, every time. So we're back to "if they print money, you get inflation".
There is another supply to consider, which rarely suffers a shock: The supply of "economists" that want to be close to the government, and are all to happy to tell it what it wants to hear: "Print, print, don't worry, I have a spreadsheet that says that sometimes you print money and there's no inflation, so go for it. Am I getting invited to the next party?"
If my country's farms used to produce 2 billion calories per day which kept up with demand, and they drop to only producing 1 billion calories per day and now we have a food shortage - does the nation "want more stuff" because we want to import more food, or do we merely want the same amount of calories as before?
Isn't a better interpretation of that kind of supply shock "The government can no longer pay for the same stuff it used to"? That's a much different scenario to "The government wants more stuff but can't pay for it," because telling the public that you don't have the money to pay for reliable electricity or hip replacements is the kind of thing that causes regime change. People hate losing stuff more than they like gaining stuff.
Say you have an economy (ie: Turkey) where people only use the local currency as a bridge and converts their revenue to EUR/USD as soon as they receive it. The currency will get into an inflationary spiral as the stocks of savings turn into available supply of currency.
Supply shock isn't an acceptable explanation within neoliberal economic dogma.
You get hyperinflation when a country's balance of payments tilts so far to imports it falls over. Supply destruction is one common route to this. But - for example in Weimar - the burden of reparations also played a part. (Not officially exports, but a loss of capital nonetheless.)
However - through a mysterious neoliberal process the oil shocks of the 70s and 80s, during which the oil price tripled creating massive inflation in economies that relied on oil for almost everything, became a tale of greedy workers forcing up pay and prices.
We're seeing this very clearly in the UK where most workers have barely had a significant pay rise for more than a decade, but the chair of the BoE is encouraging "restraint" - while the energy companies price gouge their customers to make astonishing profits and banker bonus caps are being lifted.
Combined with the supply and export destruction wreaked by Brexit, the prospect of hyperinflation is a real concern now.
Supply shocks can lead to inflation, but hyperinflation seems to always result from bad monetary policy (specifically, money printing). To prove this point, all hyperinflation episodes have taken place on fiat currency. Usually, the bad monetary policies are a response to general chaos in the economy, but the policies themselves seem to create the hyperinflation.
I'm not an expert, but this is my conclusion from reading the article.
Not just a supply shock. Supply shock of food and/or fuel(energy). These are the absolutely need to have that you can't stop buy no matter what. Demand can't go down. Prices of food and fuel going up, you stop buying nice-to-have to keep up with food and fuel prices.
You can actually find food/fuel scarcity in every case of hyperinflation where we have some kind of statistics (which in less than 2 centuries).
Scarcity of nice-to-have goods and services will not trigger hyper inflation.
Supply destruction causing inflation seems like another monetary phenomenon.
If inflation is caused by printing more money at a faster rate than the economy grows, then when the economic growth rate is negative then money would need to be destroyed to avoid inflation.
It's not the supply destruction that caused the inflation, it's rate of monetary expansion being greater than the rate of economic growth.
Well, the most common way to get to live beyond your means is to have your means pulled up from you before you have any time to react.
That doesn't mean the productivity crisis is directly creating hyperinflation. As an idea it doesn't even make sense, because productivity crisis are bounded, but hyperinflation isn't.
Let me correct you on whole Zimbabwe point, the implication is oh the white farmers were so good and Mugabe ruined it by giving the land to the incompetent or uneducated locals and while there is some truth to that its definitely not the whole story. In truth the whites were stealing minerals and precious metals from the country on the cheap and laundering that money as farming proceeds giving the impression of this bread basket cause it was all funded by illicit funds. When they were kicked out they continued to steal these minerals through bribing the top officials but the only difference was there was no-longer an incentive to send the money back into Zimbabwe and hence the farming was no-longer supported by illicit funds and it collapsed.
tl:dr its easy to run a successful casino when you are funding it with drug money. Zimbabwe only ever had two options get robbed or get robbed, at least now the locals actually owned the land. The inflation was retaliation for standing up to the bullies!
That's the very dangerous game that Biden is playing with the SPR releases to buy Democrats votes, while simultaneously being very hostile to domestic oil and gas.
If there is any sort of supply disruption in oil domestically, it's going to be the perfect storm. OPEC+ will be all too happy to have "maintenance issues" that same week and boom, $300 barrels of oil for the US, a functionally empty SPR, and we get to witness that mix of incompetence, desperation, and power that results in catastrophic ideas.
For maximum devastation, this happens close to the Presidential elections.
Lots of conspiratorial theories here but the best way to mitigate this very dangerous game is to not rely on oil for your day-to-day needs - so instead of driving to Costco for gas in a giant SUV and living in the suburbs, you change your way of life. This applies at the personal level and also nation state level. Germany shutting down nuclear reactors and relying on Russian fossil fuels is another dangerous game that was placed and lost.
Or don’t.
And then regardless who is president this happens anyway because there is no economic policy in existence that will give you forever cheap gasoline and oil unless we have some miracle breakthrough technology like fungus growing oil or something.
OPEC+ won’t have “maintenance issues” because while they have a stranglehold on oil production, there is a pain point where malfeasance would result in US military action to get oil flowing again.
I think this could be solved with a hard liquor backed currency. Not some boring metal or fiat hypnosis, but something of intrinsic, unwavering value. It would put things in perspective. And the sense of security from knowing you've got twenty bottles of whiskey in your pocket would assuage the anxiety of knowing you'll never retire or own a house.
It might also give us an excuse for our society, which would have some real value too.
ONE DOLLAR IN LIQUOR POURABLE TO THE BEARER ON DEMAND
Small bottles of alcohol have historically become currency during instances of war and/or hyperinflation - there are reports of this during both the Bosnian war and WW2.
The problem with it long-term is that it's a deflationary currency. Liquor gets consumed; once you pay a drunk with a bottle of alcohol, he tends to drink it and take it out of circulation. This means the value of alcohol goes up as the crisis continues, which means people have an incentive to hoard rather than circulate it, which means that it eventually loses its utility as a currency.
Well I was almost finished designing the base note featuring a florid faced, beaming Nixon for the obverse and parachuting dodo bird clutching a bundle of wilting tulips on the reverse.
I'm not sure about that. It’s relatively easy to make and doesn’t require any particularly scarce materials. It just takes some time to ferment. But the alcohol industry is very good at supplying as much as people will buy. Seems more equilibritory than either deflationary or inflationary.
It is an old joke that in Poland you can get much more favors done with a bottle of booze than its cash equivalent. That is referring to now, not even war or hyperinflation.
So... Just saw this - Prosecutors allege an inside job. The target? Rare bourbon.
> An unusual criminal case shows how far thirsty fans are going as sought-after whiskeys become increasingly scarce
> Rob Adams allegedly promised bourbon fans something most could not get: easy access to the good stuff.
> The nation has been on a decade-long bourbon binge, making the rarest bottles increasingly unobtainable. Aficionados drive cross-country, shell out thousands and have even traded boats for brown water.
I really like your idea, but having been given to witness what disappeared the fastest from stores when Covid started, I'd back it with toilet paper instead.
Actual toilet paper I mean, not the green stuff that people use to barter these days.
I've heard from first-hand account that during Serbian hyperinflaction in the early 1990s, the value of a bottle of vodka was the common denomination of exchange.
That might have been true in some cases, but vodka wasn't super popular in Serbia. At the time they would have been been more likely to barter homebrew rakija or smuggled cigarettes. People who could also switched to using Deutschmarks or Swiss Francs.
It's not hyperinflation by any means, but it is interesting to me that when federal reserve notes were first issued, there was a $100 bill. That would be roughly $3000 today, and yet many places to this day won't accept bills larger than a $20 and the US has declined to print larger bills due to a worry of large denominations utility in crime.
The $10k limit for CTRs and reporting for international travel is a particularly annoying one, as when it was set it was worth more than $60k in today-dollars, making our current regulatory burden something much greater than the law originally intended.
Currency limits hardcoded in law as integers really need automatic inflation adjustment similarly specified.
I kind of would like the CPI to be used as a peg, but also think that if lots of things were pegged to it, the calculation would become a political football.
Just as crazy is that we still have the penny. Worth less than the metal it's made out of. If you see it in the street, you leave it there. When you get home you empty the change from your pockets, and the pennies just end up taking up space in a drawer somewhere. Not worth enough to even bother counting to change at the bank.
Terry Pratchett did a piece on this in his book, "making money".
A scam artist was asked to take over the capital city's rotten central bank, which contained the mint.
He made the point that these little coins cost more to make than they were worth, and what was the point? In this case they had a coin that was a tenth of a penny I think.
Turns out the point was when you didn't have a lot of money, these coins mattered. They could buy you a not so rotten apple core on the right street.
I think the point was; life is a lot different when you are poor, and that's when cents matter.
If I could, I would eliminate the penny, nickel, and dime. In terms of value, the dime is a bit iffy, but having to make change with a combination of quarters and dimes would be rather unpleasant, and now that consumer price inflation is going again, the dime should be on its way out anyways.
$100 bills are still made, though you're right that there may be reluctance to accept them.
There were bills much larger than $100 at one time, but those were mainly used for things like, e.g. settling accounts between banks in the days before electronic transfers. The largest ever made was a $100,000 gold certificate.
All major retailers - that includes Target, Walmart, CVS, Walgreens, Costco, Kroger, BestBuy - will accept $100 bills. They might occasionally get annoyed at needing to request change, to break the $100, from a floor manager. The parent comment is wrong on that point.
I'm curious how surprising this really is. I mean I imagine most of the documented anythings have happened in the last 100 years, because documentation of everything has gotten so much better over the last 100 years.
Not to mention, how do you have hyperinflation with gold bars and barter?
Not really. Hyperinflation is a failure mode expected to be almost unique to fiat currency, which is relevantly recent as a norm. Other types of currencies have different problems. Plus, having data that would even detect hyperinflation is a recent thing in most of the world.
Actually, what jumps out from thaf data (especially when you look into when the inflationary spiral that spiked into hyperinflation happened in individual cases) is that hyperinflation seems overwhelmingly to have one specific cause: major, especially global, conflict, and especially losing such a conflict; the main clusters are associated with (and shortly follow) the end of WWI, the end of WWII, and the end of the Cold War (the collapse of the Russian Ruble around 1992 is by itself about 1/5 of the list, becauae each country that was using it is listed as a separate incident.)
The history of coinage spans thousands of years. Despite the popular tales, spot barter was almost certainly not the basis of any real economies.
There is definitely some bias in the availability of data, but it was comparatively harder to end up in a hyperinflationary spiral in the era of commodity or representative currencies, and these were commonplace until the twentieth century.
There were instances of money suddenly losing all value due to the failure of the issuing state (e.g., confederate dollar banknotes), but that's probably a different story.
We have pretty good documentation on the performance of currencies over the past 500-2000 years. It is usually of historical note when an entire nation's economy collapses as a result of hyperinflation.
To have hyperinflation with gold you’d either have to have a massive influx of gold (orders of magnitude), or debase the currency by the same amount. It’s hard to debase metal currency that quickly, because of all the currency in circulation, and because past a certain point it stops being recognisable as gold.
Not to mention that you have the most number of people in history in the last hundred years, so you'd expect "largest amount of" stats to generally be from that time period (as long as they're stuff related to humans)
You can debase coins. Lower the precious part and replace it with less precious.
Also, I think more key factor is the ease of printing/minting new bigger values and the amount of economic trade that happened. If you didn't buy or trade too much back in time stepping back to barter temporarily was rather easy. Mass manufacturing is rather late thing. And during industrial revolution hyperinflation is unlikely to happen.
I'm not an economics or historian but I think hyperinflation can only really happen paper currency which is relatively modern of an invention. But that doesn't mean we invented a new problem out of hubris. Hyperinflation is only a problem in that it can cause necessary goods to become unaffordable. Goods being unaffordable (or straight up unavailable) almost certainly happened more frequently prior to paper currency.
My brother recently told me that Austrian economics is well known to be a dead end and that no one takes it seriously anymore. I’m curious if that’s really a generally held view among modern economists.
It does seem to me the Austrian theories had decent predictive power when it comes to the boom / bust cycles and inflation baked into the current monetary systems.
Mark Spitznagel wrote a superb book on austrian investing [0] (risk management with an austrian perspective, so not exactly the same). Personally as a mathematician, I prefer this to the economists who think that because the use lagrangians their ideas are somehow more valid, or worse yet, sophisticated. Either case, I don't see why austrian economics get more dirt than say, MMT.
EDIT: Spitznagel works with Taleb and his fund, Universa Investments, had a 4000% return at the beginning of the covid-19 pandemic.
It's not that mathematical models make a theory more valid or sophisticated. They make it testable, which is why neoclassical economics > both Austrian and MMT.
If Austrian school economists want to gain mindshare, they should develop models, backtest them, and report the results. Same for MMT.
By the way MMT is a political phenomenon. There are very few professional economists who think it is workable.
>Either case, I don't see why austrian economics get more dirt than say, MMT.
Austrian economics is explicitly anti-central-banking, and most economists are funded by a central bank or a government with a central bank. "It is difficult to get a man to understand something when his salary depends upon his not understanding it".
Any opinion on Friedrich Hayek, particularly The Road to Serfdom? I had difficulty absorbing it and lent it to a book snatcher before finishing. I do remember admiring the bits I thought I understood.
"No one takes it seriously anymore." Completely biased 'lefty' hogwash. Even the Fed Chair until 2014, Keynesian Ben Bernanke, had this to say about key Austrian Milton Friedman:
"Among economic scholars, Friedman has no peer. His seminal contributions to economics are legion, including his development of the permanent-income theory of consumer spending, his paradigm-shifting research in monetary economics, and his stimulating and original essays on economic history and methodology."
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
U of Chicago is still a top 5 Economics University.
Not an expert but my guess is: A purely deductive approach to economics shouldn't work because economics is not mathematics. Austrian economics is an attempt to justify economic policies many would consider overly individualistic using pure deduction.
Maybe I don’t understand the problem, but I don’t see how that shows deduction failing. You can deduce that the time of the event will be a surprise and thus cannot be deduced from the available facts.
In relation to monetary policy specifically, or in general? There are still many concepts from the Austrian school that are foundational to modern economics.
Per [0] Argentina's yearly inflation rate hit 300%, and per another comment [1] they only included monthly inflation rates >50%. Seems like if they did know about it, Argentina's hyperinflation wouldn't have been bad enough to be included.
That collection doesn’t include the largest denomination, the 100 quintillion pengö note that Hungary issued. That was during worst hyperinflation ever recorded and my family lived through it, so I collected some of notes, including a 5 pengö note from before and the 100 quintillion note from the end. See Wikipedia page https://en.wikipedia.org/wiki/Hungarian_peng%C5%91#Hyperinfl...
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1. In the Weimar Republic, Germany's productive capacity was devastated by WWI.
2. In Zimbabwe, which was "the bread basket of Africa", farm productivity famously plummeted due to the land redistribution policies of Robert Mugabe.
3. Looking at the current crisis in Sri Lanka, the forced switch to organic farming similarly destroyed farm productivity.
4. Though I wouldn't call it "hyperinflation", the COVID pandemic clearly caused shortages throughout the economy.
My point is that hyperinflation is rarely just caused by governments living beyond their means - the trigger is nearly always a supply shock, and then it's what governments do in the face of that supply shock that gives you hyperinflation.
Clearly, it has something to do with fiat money.
(The Revolutionary Government also had massive inflation, and the Confederacy, too. What characteristic did they share? Fiat money.)
If shortages caused inflation, then one would expect to see corresponding deflation when those shortages eased. But that doesn't happen.
Deflation does occur when shortages ease in those sectors (see oil & gas prices), but inflation due to shortages does increase the general price level (including wage prices) and there is a degree of 'price stickiness' in the economy (workers generally don't get pay cuts - layoffs are easier perhaps) so the higher price level remains. You might expect below average inflation in the short term, but inflation expectations probably linger to some degree.
https://www.minneapolisfed.org/about-us/monetary-policy/infl...
https://en.m.wikipedia.org/wiki/Hungarian_peng%C5%91
Economies are complicated dynamical systems, I think we can all agree that there are many possible variables in the inflation equation.
Similarly, everything you've said about the Great Depression is completely wrong. It was caused by a stock market crash known as Black Tuesday, which was the result of rampant speculative trading on margin. After a series of relatively small dips, a number of investors faced margin calls and had to sell their shares. A few of them decided to liquidate all of their stock holdings, triggering a 12.8% drop in the Dow (Black Monday), which led to many more speculators panic-selling the next day (Black Tuesday).
The exorbitant banknotes we see in this collection are more like each government's response to inflation once it has gone completely out-of-control.
In some sense they are trying to arrest the free-fall at an artificially imposed numerical point, by basically normalizing the losses already incurred up until that time.
Just goes to show how much easier it can be to manipulate the value of fiat currency compared to coin of stored value.
Seems like when stocks & bonds are denominated in fiat currency, in order for the securities to maintain their relative value, whilst maintaining volatility within tolerable ranges, the only direction for the currency to ever trend is being downward in value by comparison.
When stock certificates represent overwhelmingly more stored value than their equivalent in legal tender, that's not when you're going to have the most prosperity overall. This is not the way free enterprise started out.
We recovered well from that most recent devaluation is something that no ordinary wage earner said ever.
Clearly the cause is too much money out and not enough money in to government coffers rather than fiat.
I would say the truly necessary component to the hyperinflation phenomenon is the existence of privileged borrowers. When inflation is high, market interest rate is also high. To benefit from inflation one must be able to borrow at below inflation rate. With credit money borrowing is what creates new money. Often it's the government that chooses this over taxation for its own funding. Other times there may be other entrenched private interests who enjoy such privileges.
Its a psychological phenomenon. Lock people up for 2 years and they will want to go crazy when they get out.
Its the same reason why alcohol consumption is up and so is smoking for the first time in some years. Drug consumption is also up.
Appetite for debt is also up, anecdotally I have been thinking a lot recently on how being debt free causes me to leave lots of potential consumption, experiences and general quality of life on the table. All those things could be financed with debt. Never had such thoughts in the 2008-2019 decade
All sorts of violence is also having an uptick on a chart which is secularly going down.
I will go to my grave thinking that Putin would have never invaded Ukraine had he been able to host his monthly “kiss my ring” cerimonies/parties with his cronies. Instead he self isolated for 2+ years and he still mostly is.
Social isolation creates all sorts of pent up energy of all kinds
There is another supply to consider, which rarely suffers a shock: The supply of "economists" that want to be close to the government, and are all to happy to tell it what it wants to hear: "Print, print, don't worry, I have a spreadsheet that says that sometimes you print money and there's no inflation, so go for it. Am I getting invited to the next party?"
Say you have an economy (ie: Turkey) where people only use the local currency as a bridge and converts their revenue to EUR/USD as soon as they receive it. The currency will get into an inflationary spiral as the stocks of savings turn into available supply of currency.
You get hyperinflation when a country's balance of payments tilts so far to imports it falls over. Supply destruction is one common route to this. But - for example in Weimar - the burden of reparations also played a part. (Not officially exports, but a loss of capital nonetheless.)
However - through a mysterious neoliberal process the oil shocks of the 70s and 80s, during which the oil price tripled creating massive inflation in economies that relied on oil for almost everything, became a tale of greedy workers forcing up pay and prices.
We're seeing this very clearly in the UK where most workers have barely had a significant pay rise for more than a decade, but the chair of the BoE is encouraging "restraint" - while the energy companies price gouge their customers to make astonishing profits and banker bonus caps are being lifted.
Combined with the supply and export destruction wreaked by Brexit, the prospect of hyperinflation is a real concern now.
I'm not an expert, but this is my conclusion from reading the article.
You can actually find food/fuel scarcity in every case of hyperinflation where we have some kind of statistics (which in less than 2 centuries).
Scarcity of nice-to-have goods and services will not trigger hyper inflation.
If inflation is caused by printing more money at a faster rate than the economy grows, then when the economic growth rate is negative then money would need to be destroyed to avoid inflation.
It's not the supply destruction that caused the inflation, it's rate of monetary expansion being greater than the rate of economic growth.
(With velocity held constant of course, MV=PQ).
That doesn't mean the productivity crisis is directly creating hyperinflation. As an idea it doesn't even make sense, because productivity crisis are bounded, but hyperinflation isn't.
Deleted Comment
tl:dr its easy to run a successful casino when you are funding it with drug money. Zimbabwe only ever had two options get robbed or get robbed, at least now the locals actually owned the land. The inflation was retaliation for standing up to the bullies!
Could you provide sources?
If there is any sort of supply disruption in oil domestically, it's going to be the perfect storm. OPEC+ will be all too happy to have "maintenance issues" that same week and boom, $300 barrels of oil for the US, a functionally empty SPR, and we get to witness that mix of incompetence, desperation, and power that results in catastrophic ideas.
For maximum devastation, this happens close to the Presidential elections.
Or don’t.
And then regardless who is president this happens anyway because there is no economic policy in existence that will give you forever cheap gasoline and oil unless we have some miracle breakthrough technology like fungus growing oil or something.
OPEC+ won’t have “maintenance issues” because while they have a stranglehold on oil production, there is a pain point where malfeasance would result in US military action to get oil flowing again.
It might also give us an excuse for our society, which would have some real value too.
ONE DOLLAR IN LIQUOR POURABLE TO THE BEARER ON DEMAND
The problem with it long-term is that it's a deflationary currency. Liquor gets consumed; once you pay a drunk with a bottle of alcohol, he tends to drink it and take it out of circulation. This means the value of alcohol goes up as the crisis continues, which means people have an incentive to hoard rather than circulate it, which means that it eventually loses its utility as a currency.
If not alcohol, what then?
Perhaps that it has intrinsic value, can be consumed, and more can be made would cancel out inflation/deflation at some equilibrium point?
Ultrasound money, Proof of Burn, etc.
Maybe we could adopt a basket of different spirits as a metric so that one bad harvest of a specific crop doesn't affect the currency so much.
> An unusual criminal case shows how far thirsty fans are going as sought-after whiskeys become increasingly scarce
> Rob Adams allegedly promised bourbon fans something most could not get: easy access to the good stuff.
> The nation has been on a decade-long bourbon binge, making the rarest bottles increasingly unobtainable. Aficionados drive cross-country, shell out thousands and have even traded boats for brown water.
https://wapo.st/3eVjTZa
How about a non-boring metal?
Yet Another Modest Proposal - The Roentgen Standard https://larryniven.net/stories/roentgen.shtml
https://www.orau.org/health-physics-museum/collection/radioa...
Actual toilet paper I mean, not the green stuff that people use to barter these days.
You gotta be able to exchange it for a fixed amount of the booze.
I wonder if a particular distillation would be considered more valuable.
Currency limits hardcoded in law as integers really need automatic inflation adjustment similarly specified.
https://en.m.wikipedia.org/wiki/Penalty_unit
A scam artist was asked to take over the capital city's rotten central bank, which contained the mint.
He made the point that these little coins cost more to make than they were worth, and what was the point? In this case they had a coin that was a tenth of a penny I think.
Turns out the point was when you didn't have a lot of money, these coins mattered. They could buy you a not so rotten apple core on the right street.
I think the point was; life is a lot different when you are poor, and that's when cents matter.
There were bills much larger than $100 at one time, but those were mainly used for things like, e.g. settling accounts between banks in the days before electronic transfers. The largest ever made was a $100,000 gold certificate.
Not to mention, how do you have hyperinflation with gold bars and barter?
Not really. Hyperinflation is a failure mode expected to be almost unique to fiat currency, which is relevantly recent as a norm. Other types of currencies have different problems. Plus, having data that would even detect hyperinflation is a recent thing in most of the world.
Actually, what jumps out from thaf data (especially when you look into when the inflationary spiral that spiked into hyperinflation happened in individual cases) is that hyperinflation seems overwhelmingly to have one specific cause: major, especially global, conflict, and especially losing such a conflict; the main clusters are associated with (and shortly follow) the end of WWI, the end of WWII, and the end of the Cold War (the collapse of the Russian Ruble around 1992 is by itself about 1/5 of the list, becauae each country that was using it is listed as a separate incident.)
There is definitely some bias in the availability of data, but it was comparatively harder to end up in a hyperinflationary spiral in the era of commodity or representative currencies, and these were commonplace until the twentieth century.
There were instances of money suddenly losing all value due to the failure of the issuing state (e.g., confederate dollar banknotes), but that's probably a different story.
Also, I think more key factor is the ease of printing/minting new bigger values and the amount of economic trade that happened. If you didn't buy or trade too much back in time stepping back to barter temporarily was rather easy. Mass manufacturing is rather late thing. And during industrial revolution hyperinflation is unlikely to happen.
In shops tills, the per-item value is larger than the total because there is not enough room to display the total.
As an extra layer of joy to the uninitiated, in speech we often abbreviate the millions to hundreds. Hence 200,000,000 becomes 200.
It does seem to me the Austrian theories had decent predictive power when it comes to the boom / bust cycles and inflation baked into the current monetary systems.
EDIT: Spitznagel works with Taleb and his fund, Universa Investments, had a 4000% return at the beginning of the covid-19 pandemic.
[0] The Dao of Capital
If Austrian school economists want to gain mindshare, they should develop models, backtest them, and report the results. Same for MMT.
By the way MMT is a political phenomenon. There are very few professional economists who think it is workable.
Austrian economics is explicitly anti-central-banking, and most economists are funded by a central bank or a government with a central bank. "It is difficult to get a man to understand something when his salary depends upon his not understanding it".
"Among economic scholars, Friedman has no peer. His seminal contributions to economics are legion, including his development of the permanent-income theory of consumer spending, his paradigm-shifting research in monetary economics, and his stimulating and original essays on economic history and methodology."
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
U of Chicago is still a top 5 Economics University.
https://www.federalreserve.gov/boarddocs/speeches/2002/20021...
An example of deduction failing unexpectedly can be found here: https://en.wikipedia.org/wiki/Unexpected_hanging_paradox
[1] https://www.cambridge.org/core/journals/journal-of-latin-ame...
[0] https://www.citeco.fr/10000-years-history-economics/contempo...
[1] https://news.ycombinator.com/item?id=32897119
[1] https://es.wikipedia.org/wiki/Inflación_en_Argentina (in Spanish)