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.
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.
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?"
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.
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.
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.
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.
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.
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.
$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.
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?
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.
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...
"B. Pengö" means "Billion Pengö", but with a European "Billion", which would be a trillion Pengö in American counting. So the printed, but never circulated "1.000.000.000 B.-Pengő" bill was actually "worth" 10^21 Pengö.
When Hungary introduced the Forint in 1946, the exchange rate was 1 Forint = 400.000.000.000.000.000.000.000.000.000 Pengő.
That's at least what German Wikipedia says, no matter how incredible it may sound.
The beauty of all money being electronic is that it will make it practical to have an hyper-inflation. Which given how irresponsible the central banks and governements are is only a matter of time.
Interesting, I wonder how many of those 100,000 $(currency) bills are associated with hyperinflation vs. regular run-of-the-mill inflation over a very long time.
South Korea has 50,000 KRW bills (= about $36 these days), but its currency has been pretty stable in the past 40+ years.
It's no surprise that many former colonies are on this list. Many were subjected to economic retribution from attempting to establish their sovereignty in a hostile global trade environment. Many colonizers imposed enormous debts on colonies in exchange for their freedom[1]. Runaway inflation is one of the many indiscriminate tolls sanctions impose on the people of a country.
Why sell the products you produce on your farm to locals when you can ship them overseas and get dollars to exchange for medicine? Medicine that is illegal to produce in your country if your country hopes to operate in the good graces of the WTO[2].
All of this history is condensed by the author into mere "haphazard fiscal policies and civil struggles." This gallery of currencies is a stunning visceral departure point for understanding macroeconomic policy, my only wish is that it went deeper.
Typically, hyperinflation is caused by a country trying to print money to pay a debt denominated in an external currency. (Because, the more money you print, the worse the exchange rate gets, so you have to keep printing more and more.). And very often, the crisis is related to imf loans taken under duress. (Venezuela, Zimbabwe, etc etc). Read “confessions of an economic hit man” if you want to know more about how that happens.
Does anyone know what happens after these hyperinflationary periods with the notes?
Are they made illegal tender?
For example I was curious about if you held onto a 10 million Ruble note when it was "worthless" until the point the Ruble recovered, is that note still legal tender and has your "investment" appreciated?
I was looking at the bill from Weimar Germany that says "Zwei Billionen Mark" with the caption of "Two trillion mark" and I was like, did they get that wrong? I looked it up and sure enough the German word for trillion is billion! Languages are wild, I wonder how that happened.
How are these bills now worthless? I can't go to Zimbabwe today and get 100 trillion dollars (2.6 billion USD) from the currency that they printed that is supposed to be worth that amount?
[+] [-] hn_throwaway_99|3 years ago|reply
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.
[+] [-] WalterBright|3 years ago|reply
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.
[+] [-] fspeech|3 years ago|reply
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.
[+] [-] fzzt|3 years ago|reply
[+] [-] MrPatan|3 years ago|reply
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?"
[+] [-] csomar|3 years ago|reply
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.
[+] [-] TheOtherHobbes|3 years ago|reply
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.
[+] [-] eggestad|3 years ago|reply
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.
[+] [-] panarky|3 years ago|reply
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).
[+] [-] marcosdumay|3 years ago|reply
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.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] silent_cal|3 years ago|reply
[+] [-] Gtex555|3 years ago|reply
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!
[+] [-] tenpies|3 years ago|reply
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.
[+] [-] eth0up|3 years ago|reply
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
[+] [-] nostrademons|3 years ago|reply
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.
[+] [-] forinti|3 years ago|reply
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.
[+] [-] forgotmypw17|3 years ago|reply
[+] [-] christophilus|3 years ago|reply
[+] [-] shagie|3 years ago|reply
> 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
[+] [-] shagie|3 years ago|reply
How about a non-boring metal?
Yet Another Modest Proposal - The Roentgen Standard https://larryniven.net/stories/roentgen.shtml
[+] [-] ur-whale|3 years ago|reply
Actual toilet paper I mean, not the green stuff that people use to barter these days.
[+] [-] maxerickson|3 years ago|reply
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.
[+] [-] 20after4|3 years ago|reply
[+] [-] block_dagger|3 years ago|reply
[+] [-] tootie|3 years ago|reply
[+] [-] seer-zig|3 years ago|reply
[+] [-] aidenn0|3 years ago|reply
[+] [-] sneak|3 years ago|reply
Currency limits hardcoded in law as integers really need automatic inflation adjustment similarly specified.
[+] [-] eloff|3 years ago|reply
[+] [-] Turing_Machine|3 years ago|reply
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.
[+] [-] bawolff|3 years ago|reply
[+] [-] janandonly|3 years ago|reply
[+] [-] bee_rider|3 years ago|reply
Not to mention, how do you have hyperinflation with gold bars and barter?
[+] [-] Daub|3 years ago|reply
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.
[+] [-] christophilus|3 years ago|reply
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.
[+] [-] wslh|3 years ago|reply
[1] https://www.cambridge.org/core/journals/journal-of-latin-ame...
[+] [-] GatorD42|3 years ago|reply
[+] [-] jansan|3 years ago|reply
When Hungary introduced the Forint in 1946, the exchange rate was 1 Forint = 400.000.000.000.000.000.000.000.000.000 Pengő.
That's at least what German Wikipedia says, no matter how incredible it may sound.
[+] [-] llanowarelves|3 years ago|reply
"It won't happen here!"
It's not us doing money printing.. it's uh.. COVID, uh.. the war, uh.. Climate change, uh.. corporate greed.
[+] [-] cm2187|3 years ago|reply
[+] [-] yongjik|3 years ago|reply
South Korea has 50,000 KRW bills (= about $36 these days), but its currency has been pretty stable in the past 40+ years.
[+] [-] omegaworks|3 years ago|reply
Why sell the products you produce on your farm to locals when you can ship them overseas and get dollars to exchange for medicine? Medicine that is illegal to produce in your country if your country hopes to operate in the good graces of the WTO[2].
All of this history is condensed by the author into mere "haphazard fiscal policies and civil struggles." This gallery of currencies is a stunning visceral departure point for understanding macroeconomic policy, my only wish is that it went deeper.
1. https://www.nytimes.com/2022/05/20/world/americas/haiti-hist...
2. https://www.wto.org/english/tratop_e/trips_e/pharma_ato186_e...
[+] [-] fallingfrog|3 years ago|reply
[+] [-] richrichardsson|3 years ago|reply
[+] [-] wuliwong|3 years ago|reply
[+] [-] keeganjw|3 years ago|reply
[+] [-] bawolff|3 years ago|reply
I was under the impression that in olden times currency was backed by gold (or something similar). How would hyperinflation occur in such a situation?
[+] [-] batshibstein|3 years ago|reply
[+] [-] Stamp01|3 years ago|reply
This is still cool, though.