Monetary Regimes and Inflation

Monetary Regimes and Inflation

History, Economic and Political Relationships, Second Edition

Peter Bernholz

Exploring the characteristics of inflations and comparing historical cases from Roman times up to the modern day, this book provides an in depth discussion of the subject. It analyses the high and moderate inflations caused by the inflationary bias of political systems and economic relationships, as well as the importance of different monetary regimes in containing them. The differences for the possible size of inflations among monetary regimes like metallic currencies, the gold standard and fiat paper money are discussed. It is shown that huge budget deficits of government have been responsible for all hyperinflations. This revised second edition debates whether a growth of the money supply exceeding that of real Gross Domestic Production is a necessary or sufficient reason for inflation and also includes a new concluding chapter, which explores the long-term tendencies to create, maintain and abolish inflation-stable monetary regimes. Moreover, the conditions for long-term inflation-stable monetary regimes in history are explored.

Chapter 3: Inflation under metallic monetary regimes

Peter Bernholz

Subjects: economics and finance, financial economics and regulation


Inflation has probably been a characteristic of human history since money has been used as a means of payment. With money based on a metallic standard two possible reasons for a permanent or continuous rise in prices can be present. First, the supply of the metal on which a currency is based can increase. This can happen when new natural deposits, let us say of gold or silver, are detected; or else, when great treasures consisting mainly of gold and silver are taken as booty in a war and then put into circulation as money. Second, the metallic currency may be debased by lowering the content of silver or gold in coins by substituting copper or by reducing their weight without changing their nominal face value. Or, the face value of coins is increased without increasing the content of gold or silver in the same proportion. In this section we will discuss the first of these alternatives, which has only led to rather limited inflations. We know that general but limited price increases occurred several times in antiquity because captured foreign treasures were put into circulation. So it seems that a doubling of prices took place after Alexander the Great had coined the treasures won after the defeat of Persia (Heichelheim 1930, pp. 9, 40f., 1955, p. 503).

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