Lessons on Inflation from the Past

The comments below are an edited and abridged synopsis of an article by Alasdair Macleod

Macleod examines two prior inflationary experiences in an attempt to predict the outcome of today’s monetary policies. The German hyperinflation of 1923 showed that it took very 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.

Lessons on Inflation from the Past | BullionBuzz
House real estate graph price investment mortgage inflation chalkboard

Up for discussion: introduction; Germany’s 1920s hyperinflation; the comparison with John Law’s crisis in 1720; the Mississippi connection; the relevance to today; and the conclusion.

“In the past, a suitable foreign currency was fully exchangeable into silver or gold, so the decline and collapse could only be measured accordingly. It also means that it will be impossible for businesses to bypass the currency collapse by referencing prices to other currencies, being all similarly fiat. Many businesses in Germany survived the paper mark collapse in this way, but their modern equivalents will not have this option.”

“The final collapse of a currency is always a flight out of government fiat currency into goods. That can be the only outcome from the continuation of current macroeconomic policies. But above all, it would be a mistake to think it cannot happen, nor that it will be a long process giving us all plenty of time to plan. The final flight out of paper marks took approximately six months. Law’s scheme took slightly longer to destroy his livre. These should be our reference points.”

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