Good piece here by Matt O’Brien at the Atlantic. He discusses something that I discussed in my hyperinflation paper (Hyperinflation: it’s more than a monetary phenomenon) several years ago. Hyperinflation tends to be common when war occurs:
“Look at those start dates again. Hyperinflations tend to happen following wars or revolutions. Now, Weimar Germany and Zimbabwe look like exceptions to this rule, but they’re not really — the former’s resistance to reparations, and the latter’s botched land reform halted economic activity as much as any conflict. So, to generalize, there’s some kind of political crisis that destroys the economy. “
This is a crucial understanding. And it’s not just wars. Hyperinflation has tended to occur in nations when some unusual exogenous shock to the economy occurs. The monetary response is usually the after-shock of something else going on. Typically:
- Collapse in production.
- Rampant government corruption.
- Loss of a war.
- Regime change or regime collapse.
- Ceding of monetary sovereignty generally via a pegged currency or foreign denominated debt.
H/t Daniel Bach via Twitter