{"id":37239,"date":"2018-09-01T15:12:44","date_gmt":"2018-09-01T20:12:44","guid":{"rendered":"http:\/\/olduvai.ca\/?p=37239"},"modified":"2018-09-02T10:07:13","modified_gmt":"2018-09-02T15:07:13","slug":"friedman-on-inflation-hanke-on-hyperinflation","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=37239","title":{"rendered":"Friedman On Inflation, Hanke on Hyperinflation"},"content":{"rendered":"
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Friedman On Inflation, Hanke on Hyperinflation<\/a><\/span><\/h3>\n<\/div>\n
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In 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon of economic quotables. As Friedman correctly put it in a book chapter titled \u201cWhat Price Guideposts?\u201d: \u201cInflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relative to output\u2026. It follows that the only effective way to stop inflation is to restrain the rate of growth of the quantity of money.\u201d<\/p>\n

While true, Friedman\u2019s classic statement doesn\u2019t tell us anything about what drives the growth of the money supply that fuels inflation. The importance of this omission becomes particularly important in hyperinflations, when the\u00a0monthly inflation rate exceeds 50% for thirty consecutive days<\/a>. Hyperinflations are rather rare. There have only been\u00a058 episodes of hyperinflation in recorded history<\/a>. The first episode occurred in France, where the mandat collapsed. In August 1796, France\u2019s monthly inflation rate peaked at 304%. Today, there is only one hyperinflation, Venezuela\u2019s. I measure both Venezuela\u2019s monthly and annual rate of inflation with high-frequency data each day. On August 27th, Venezuela\u2019s monthly rate of inflation was 177% and its annual rate of inflation was 60,934%.<\/p>\n

Many people ask, how can this be? What drives the money supply and inflation to astronomical heights? To answer these questions, we must go behind Friedman\u2019s heavily quoted words.<\/p>\n

In hyperinflations, the \u201cprinting presses\u201d go into overdrive because governments spend, and all the sources for funding their largess either never existed or wither away, except one: central banks. To set the stage, in a pre-hyperinflation situation, when a full array of financing options are available, government expenditures can be financed by taxes, by the domestic and international bond markets, by revenue from state-owned enterprises, and by central banks. In addition, governments can defer payments by accumulating arrears. So, arrears are also a means of \u201cfunding.\u201d Governments can also go hat-in-hand to obtain foreign aid, yet another source of funding.<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Friedman On Inflation, Hanke on Hyperinflation In 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon of economic quotables. As Friedman correctly put it in a book chapter titled \u201cWhat Price Guideposts?\u201d: \u201cInflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[7921,413,426,21477,7736,851],"class_list":["post-37239","post","type-post","status-publish","format-standard","hentry","category-economics","tag-forbes","tag-hyperinflation","tag-inflation","tag-milton-freedman","tag-steve-hanke","tag-venezuela"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=37239"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37239\/revisions"}],"predecessor-version":[{"id":37260,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37239\/revisions\/37260"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=37239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=37239"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=37239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}