Lessons on inflation from the past

This article examines two inflationary experiences in the past in an attempt to predict the likely outcome of today’s monetary policies. The German hyperinflation of 1923 demonstrated that it took surprisingly little monetary inflation to collapse the purchasing power of the paper mark. This is relevant to the fate of the “whatever it takes” inflationary policies of today’s governments and their central banks. The management of John Law’s Mississippi bubble, when he used paper money to rig the market is precisely what central bank policy is aimed at achieving today. By binding the fate of the currency to that of financial assets, as John Law proved, it is the currency that is destroyed.

Introduction

At the outset, I shall make a point about the relevance of the chart below, a screengrab from Constantino Bresciani-Turroni’s The Economics of Inflation, which has been frequently reproduced and will be familiar to many who have read about Germany’s post-First World War inflation. [ … ]

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